Edgar Filing: KEYSTONE AUTOMOTIVE INDUSTRIES INC

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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

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FORM 10-K

(Mark One)

[X]ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934

For the fiscal year ended March 30, 2001

[_]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number: 0-28568

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KEYSTONE AUTOMOTIVE INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)

California 95-2920557
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification Number)

700 East Bonita Avenue, Pomona, California 91767
(Address of principal executive offices) (Zip Code)

Registrant's telephone number, including area code: (909) 624-8041

Securities registered pursuant to Section 12(b) of the Act:

None

Securities registered pursuant to Section 12(g) of the Act:

Common Stock, no par value
(Title of Class)

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Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes [X] No [_]

Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of the Form 10-K or any
amendment to this form 10-K. [_]

The aggregate market value of the voting stock held by nonaffiliates of the
registrant based upon the closing sales price of its Common Stock on June 7,
2001 on the Nasdaq National Market was approximately $141,564,627. For
purposes of the foregoing calculation, shares of Common Stock held by each
officer and director and by each person who may be deemed to be an affiliate
have been excluded.

The number of shares of Common Stock outstanding as of June 7, 2001:
14,365,595.

DOCUMENTS INCORPORATED BY REFERENCE

The information required by Part III is incorporated by reference to
portions of the Registrant's definitive proxy statement for the 2001 Annual
Meeting of Stockholders which will be filed with the Securities and Exchange
Commission within 120 days after the close of the 2001 fiscal year.

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FORWARD LOOKING STATEMENTS

This Annual Report on Form 10-K contains forward-looking statements within
the meaning of Section 27A of the Securities Act of 1933, as amended (the
"Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), that involve risks and uncertainties, such as
statements of the Company's strategies, plans, objectives, expectations and
intentions. The Company's actual results could differ materially from those
anticipated in these forward-looking statements as a result of certain
factors, including those set forth under "Cautionary Statements" in Item 1
below and elsewhere in this Annual Report. The cautionary statements made in
this Annual Report should be read as being applicable to all related forward-
looking statements wherever they appear in this Annual Report.

PART I

ITEM 1. BUSINESS

General

Keystone Automotive Industries, Inc. ("Keystone" or the "Company") is the
nation's leading distributor of aftermarket collision replacement parts
produced by independent manufacturers for automobiles and light trucks.
Keystone distributes products primarily to collision repair shops throughout
most of the United States. In addition, the Company recycles and produces
chrome plated and plastic bumpers and remanufactures alloy wheels. The
Company's product lines consist of automotive body parts, bumpers, autoglass
and remanufactured alloy wheels, as well as paint and other materials used in
repairing a damaged vehicle. Keystone currently offers more than 19,000 stock
keeping units to over 25,000 collision repair shop customers, out of an
estimated 51,000 shops nationwide. Founded in Southern California in 1947, the
Company operates a "hub and spoke" distribution system consisting of 113
service centers, 24 of which serve as regional hubs, and 19 depots, located in
35 states throughout the United States, as well as in Vancouver, Canada and
Tijuana, Mexico. From these service centers, Keystone has approximately 1,135
service and salespersons who call on or have contact with collision repair
shops. In addition, the Company operates nine wheel remanufacturing facilities
and 40 plastic and steel bumper recycling facilities.

The Company is in the process of becoming certified as an ISO 9001
distributor. ISO 9001 implementation policies and procedures include quality
and service, performance, lot traceability, customer satisfaction and
complaint resolution. The Company expects to have its executive offices and
approximately 95 locations registered under the program by June 30, 2002;
however, there can be no assurance that the registration process will be
completed by that date. At that time, the Company believes that it may be the
only company in its industry that will be ISO 9001 certified.

The Company has met the requirements of the Manufacturers' Qualification and
Validation Program ("MQVP"). One of the requirements of the program involves
becoming ISO 9001 qualified. The MQVP program defines expectations and part
quality requirements for manufacturers, suppliers and distributors of
aftermarket collision parts. The Company's implementation of the ISO 9001
program and participation in MQVP reflects its commitment to quality parts and
customer satisfaction. The Company believes that Nationwide Insurance
Company's return to specifying certain aftermarket collision parts in the
repair of insured vehicles is currently limited to parts available from MQVP
qualified manufacturers and distributors. While any distributor may become
qualified under MQVP by meeting its requirements, the Company believes that to
date only two distributors have qualified.

To emphasize the high quality of aftermarket parts distributed by Keystone,
it instituted its "Keystone Platinum Plus" program in September 2000. This
program covers only the highest quality parts, which are warranted for the
lifetime of the owner of the vehicle being repaired, as long as that owner
remains the owner of the vehicle. The Company believes that Platinum Plus is
the first and only premium brand of independently produced collision
replacement parts. To date, Platinum Plus product categories include radiators
and condensers, wheels, grilles, lights, hoods, fenders and certain bumpers.
The Company anticipates adding additional products to the Platinum Plus
program during the current fiscal year.

See "Cautionary Statements" below concerning the impact on the Company of
the decision in the State Farm Mutual Automobile Insurance Company ("State
Farm") class action lawsuit and subsequent actions by other insurers and state
legislatures and administrators.

Industry Overview

History. The Company estimates that the wholesale market for aftermarket
collision parts is about $1.5 billion in annual expenditures, or approximately
12% of the collision parts market. These estimates do not take into account a
possible shrinkage in the market as a result of the State Farm decision and
subsequent actions. See "Cautionary Statements" below. In addition, the
Company estimates that annual wholesale sales of paint and related supplies
and equipment for collision repair currently account for approximately $2.4
billion. Substantially all of the remainder of the collision parts market
consists of parts produced by original equipment manufacturers ("OEMs"), and a
substantial number of collision parts are available exclusively from OEMs and
are likely to remain so. The growth in sales of aftermarket collision parts
over the last decade has been due primarily to the increased availability of
quality parts and to cost containment efforts by the insurance industry.

Before 1980, automotive collision parts were manufactured almost exclusively
by OEMs. During the 1960s and 1970s, due to prohibitive tariffs in Taiwan on
imported automobiles and restrictions on foreign ownership of manufacturing
facilities in Taiwan, certain Taiwanese automobile manufacturers commenced
producing automobiles for sale in Taiwan, which created the need for
additional parts manufacturers to supply the assembly lines. Since the early
1980s, these Taiwanese manufacturers have sought to reduce the effect on their
business of the cyclical demand for new automobiles by producing aftermarket
collision parts.

The Company estimates that approximately 85% of all automobile collision
repair work is paid for in part by insurance. Accordingly, major insurance
companies exert significant influence over the selection of collision parts
used by collision repair shops. The availability of aftermarket collision
parts has been a major factor in the insurance industry's efforts to contain
the escalating cost of collision repairs.

Aftermarket collision parts generally sell for between 20% and 40% less than
comparable OEM parts, resulting in substantial savings for insurance companies
by providing consumers with less expensive aftermarket parts and creating
competition, often resulting in lower prices for comparable OEM parts. The
Company believes that it may be somewhat insulated from downturns in the
general economy as a result of the fact that it is estimated that
approximately 85% of all automobile collision repair work is paid for in part
by insurance.

As a part of their ongoing efforts to improve customer service, most major
insurance companies have adopted programs designating selected collision
repair shops in particular geographic areas as Direct Repair Providers
("DRPs"). DRPs are generally directed additional collision repair business by
the insurers in return for adhering to certain criteria, which may include the
use of aftermarket collision parts when available. To encourage consumers to
use DRPs, the insurers authorize the repair of collision damage without
obtaining the prior approval of the insurer's adjuster (thereby generally
providing for a quicker return of the vehicle to its owner) and offer
additional warranties concerning the repair services and parts used.

Companies offering collision support services, including Automated Data
Processing ("ADP"), Mitchell International and CCC Information Services, Inc.,
have developed proprietary software and databases to provide insurance claims
adjusters and collision repair shops with computerized access to the
inventories and prices of selected distributors of both aftermarket and OEM
collision parts nationwide. The Company's inventory and prices are included in
these databases. Access to the providers' databases enables distributors with
computerized inventory control systems, such as the Company's, to update
prices rapidly and notify collision repair shops of the availability of new
products.

Quality Assurance. In 1987, the Certified Automotive Parts Association
("CAPA") was founded to provide insurance companies, distributors, collision
repair shops and consumers with an objective method of evaluating the
functional equivalence of aftermarket collision parts and OEM collision parts.
CAPA, a non-profit

association of insurance companies, manufacturers, importers, distributors,
collision repair shops and consumer groups, establishes the specifications
for, tests and certifies the quality of aftermarket automotive collision
parts. Through independent testing laboratories, CAPA develops engineering
specifications for aftermarket collision parts based upon an examination of
OEM parts; certifies the factories, manufacturing processes and quality
control procedures used by independent manufacturers; and certifies the
materials, fit and finish of specific aftermarket collision parts. While,
according to CAPA, the number of collision part applications entitled to bear
the CAPA certification had increased from approximately 700 in August 1989 to
approximately 2,500 by May 2000, the number of CAPA-certified parts
approximates only 5% of the total number of aftermarket collision parts. CAPA
randomly reviews both the factories and individual parts previously certified
by it and solicits comments concerning the quality of certified parts from
collision repair shops and consumers on a regular basis.

Most major insurance companies have adopted policies recommending or
requiring the use of parts certified by CAPA, when available. The Company
distributes parts certified by CAPA when available and actively participates
with CAPA, insurance companies and consumer groups in encouraging independent
manufacturers of collision parts to seek CAPA certification. Management
believes that the Company is the largest distributor of CAPA-certified parts
in the United States. See "Cautionary Statements" below for information with
respect to a class action lawsuit challenging the quality of aftermarket
collision replacement parts produced by independent manufacturers and the
validity of CAPA certifications.

The Company is in the process of becoming ISO 9001 certified and has
qualified to participate in the MQVP. See "Business-General."

Consolidation. The collision repair shop industry has been in the process of
consolidating due to, among other things, (i) an increase in the technical
complexity of collision repairs generally, (ii) an increase in governmental
regulations, including environmental regulations, applicable to collision
repair shops, (iii) the designation of certain collision repair shops as DRPs
and (iv) a reduction in the number of collision repairs generally. The
increasing number of aftermarket collision parts and makes and models of
automobiles has resulted in distributors being required to maintain larger
inventories. In addition, the trend towards fewer, larger and more efficient
collision repair shops has increased the pressure on distributors to provide
price concessions, just-in-time delivery and certain value-added services,
such as training, that collision repair shops require in their increasingly
complex and competitive industry. The above factors, in turn, have contributed
to a consolidation of distributors of aftermarket collision parts, which has
provided the Company with an opportunity to expand its operations into new
markets and to penetrate further existing markets. See "Cautionary Statements"
below.

Strategy

Historically, the Company's growth strategy has been a combination of
acquisitions, product expansion and increases in same store sales. Currently,
the Company's primary strategy is to grow internally through such actions as
the introduction of its Platinum Plus program, differentiation from
competitors by becoming ISO 9001 certified, qualification under MQVP and
expansion of product sales not impacted by the State Farm decision. The
Company also anticipates that it may grow in fiscal year 2002 through possible
acquisitions and openings of new locations.

Products

The Company distributes more than 19,000 stock keeping units of aftermarket
collision parts and repair materials for most popular models of domestic and
foreign automobiles and light trucks, generally for the eight most recent
model years. The Company's principal product lines consist of automotive body
parts, bumpers, paint and other materials, remanufactured alloy wheels,
autoglass and light truck accessories. In addition, the Company recycles,
produces and distributes new and remanufactured plastic and chrome bumpers to
wholesale bumper distributors and to manufacturers of truck accessories.

Automotive Body Parts. The Company distributes automotive and light truck
parts manufactured by multiple foreign and domestic manufacturers, including
fenders, hoods, radiators and condensers and head and tail light assemblies.
These products accounted for approximately $151.8 million, or 43.2% of the
Company's net sales in the fiscal year ended March 30, 2001.

Bumpers. The Company distributes new and remanufactured plastic bumper
covers and steel bumpers manufactured by multiple domestic and foreign
manufacturers. For the fiscal year ended March 30, 2001, sales of plastic and
steel bumpers accounted for approximately $107.2 million, or 30.5% of the
Company's net sales. The Company believes that it is one of the nation's
largest non-OEM providers of new and recycled chrome plated bumpers for the
collision repair and restoration markets.

Beginning in the late 1970s and the early 1980s, manufacturers of new
automobiles began changing from an almost exclusive use of chrome plated steel
bumpers to painted plastic bumpers. By the 1996 model year, manufacturers were
using painted plastic bumpers almost exclusively for their automobiles. Chrome
plated steel bumpers are still used extensively on light trucks and sport
utility vehicles. On an annual basis, the Company electroplates approximately
220,000 steel plated bumpers for automobiles and light trucks. Bumpers used in
the operations include new steel stampings, collision-damaged bumpers that
require straightening and replating and older model or antique bumpers that
require restoration and replating. The bumper repair and replating process
generally includes some or all of the following steps: straightening or
reforming to original dimensions; welding breaks or cracks; surface grinding
to remove rust and corrosion; chemical stripping to remove the original
electroplated finishes; metal polishing and buffing; electroplating layers of
copper, nickel and chromium; and inspecting and packaging.

Paint and Other Materials. Beginning in fiscal 1993, the Company
significantly increased its emphasis on the sale of paint and other materials
used in repairing a damaged vehicle, including sandpaper, abrasives, masking
products and plastic filler. The paint and other materials distributed by the
Company are purchased from numerous domestic suppliers. For the fiscal year
ended March 30, 2001, sales of paint and other materials accounted for
approximately $59.5 million, or 16.9% of the Company's net sales. Certain of
these products are distributed under the name "Keystone."

Remanufactured Alloy Wheels. In October 1995, the Company acquired a
remanufacturer of collision damaged alloy wheels located in Denver, Colorado,
and since that time, has opened or acquired eight additional remanufacturing
operations. According to industry sources, the percentage of new automobiles
equipped with alloy wheels, as opposed to steel wheels and hubcaps, has
increased from approximately 11% in 1985 to 55% for the 2001 model year. The
average wholesale cost of a new replacement alloy wheel is approximately $225,
compared to an average wholesale cost of approximately $125 for a
remanufactured alloy wheel. The alloy wheel remanufacturing process generally
includes some or all of the following steps: straightening, welding minor
dents or chips, machining, painting and applying clear powder coat. For the
fiscal year ended March 30, 2001, sales of remanufactured alloy wheels
accounted for approximately $24.7 million, or 7.03% of the Company's net
sales.

The remanufacturing of alloy wheels is generally conducted by many small
independent operators. The Company believes that there is a large and growing
demand for remanufactured alloy wheels and that, using its existing
distribution system and customer base, the Company is well-positioned to
service that demand.

Autoglass. The Company distributes autoglass, including windshields, side
windows and rear windows, which are purchased from two domestic manufacturers.
For the fiscal year ended March 30, 2001, sales of autoglass, which was
introduced by Keystone in fiscal 1993, accounted for approximately $4.9
million, or 1.4% of the Company's net sales.

Distribution, Marketing and Sales

The Company's distribution system is designed to provide responsive customer
service and to foster long-term customer relations.

Distribution System. The Company has developed a national "hub and spoke"
distribution system consisting of 113 service centers, 24 of which serve as
regional hubs, and 19 depots. Each regional hub receives container shipments
directly from foreign and domestic manufacturers. Using the Company's fleet of
over 1,000 delivery trucks, each regional hub makes regular shipments to the
service centers in its region, which in turn make regular deliveries to its
repair shop customers. By maintaining a fleet of delivery trucks, the Company
ensures rapid delivery within its distribution system and to its customers. In
addition, each service center can order products directly from any hub or
service center. The Company manages its inventory and the ordering, shipment,
storage and delivery of products through centralized information systems that
allow the regional hubs and service centers to obtain timely information
regarding the location and availability of products. The continuing increase
in the number of makes and models of automobiles and light trucks and the
number of aftermarket collision parts has increased the pressure on
distributors to maintain larger inventories. The Company believes that its
"hub and spoke" distribution system allows it to offer its customers one of
the broadest available selections of aftermarket collision parts and to fill
most orders within 24 hours, while minimizing inventory costs.

Sales and Marketing Staff. The Company has a marketing staff, which operates
from its corporate headquarters, and has over 1,200 sales representatives and
route salespersons who operate from its service centers. The marketing staff
develops all marketing and promotional materials, assists the service centers
in recruiting and training sales representatives, route salespersons and
customer service representatives, supervises the Company's in-house management
training program and supports general managers of its service centers, sales
representatives and route salespersons with computerized analyses of sales by
product, route and customer. In addition, the marketing staff conducts
educational programs for regional insurance executives and claims adjusters to
explain the role of aftermarket collision parts in containing the escalating
costs of claims and in order to facilitate the implementation of insurance
companies' policies favoring aftermarket collision parts.

The general managers of the Company's service centers are actively involved
in customer calls. The Company believes that this local control and expertise
have contributed significantly to its growth. Through periodic training
programs and performance reviews, the Company seeks to enhance the
professionalism and technical expertise of its route salespersons. As a
result, the Company believes that its route salespersons are highly attendant
to the needs of the Company's customers.

Marketing Programs. The Company offers various marketing programs to foster
closer customer relations, including a warranty program in which the Company
generally warrants its products against defects in material and workmanship
for as long as the repair shop's customer owns the vehicle.

Customers

The Company's current customers consist of more than 25,000 collision repair
shops located in 35 states and Vancouver, Canada and Tijuana, Mexico, none of
which accounted for more than 1% of the Company's net sales during the fiscal
year ended March 30, 2001. The Company also distributes its bumpers to
wholesale distributors and to manufacturers of truck accessories. The size of
its customer base reduces the Company's dependence on any single customer and
its national scope tends to mitigate the effects of regional economic changes
and regional weather patterns. The Company estimates that there are over
51,000 collision repair shops nationwide. The number of collision repair shops
to whom the Company sold products increased from approximately 13,400 in
fiscal 1993 to approximately 25,000 in fiscal 2001.

The Company's regional hubs also sell collision parts to local distributors
who may compete with the Company. These sales accounted for less than 10% of
the Company's net sales during the fiscal year ended March 30, 2001 and no
distributor accounted for more than 1% of the Company's net sales for such
fiscal year.

Suppliers

The products distributed by the Company are manufactured by over 60
manufacturers, and no single supplier provided as much as 10% of the products
purchased by the Company during fiscal 2001. The Company

believes that it is one of the largest customers of each of its ten largest
suppliers. In fiscal 2001, approximately 85% of the products distributed by
the Company were manufactured in the United States or Canada, and
approximately 15% were imported directly from manufacturers in Taiwan. The
Company's orders from domestic suppliers generally are received within 10 days
and orders from foreign manufacturers generally are received in between 60 and
90 days. Although the Company has no manufacturing agreements with any of its
suppliers and competes with other distributors for production capacity, the
Company believes that its sources of supply and its relationships with its
suppliers are satisfactory. Although alternative suppliers exist for
substantially all products distributed by the Company, the loss of any one
supplier could have a material adverse effect on the Company until alternative
suppliers are located and have commenced providing products.

Competition

Based upon industry estimates, the Company believes that approximately 82%
of collision parts are supplied by OEMs, compared with approximately 12% by
distributors of aftermarket collision parts and 6% by distributors of salvage
parts. See "Cautionary Statements" below for a discussion of a recent court
decision which is impacting the market share of aftermarket collision parts.
The Company encounters intense competition from OEMs, all of which have
substantially greater financial, distribution, marketing and other resources,
including greater brand recognition and a broader selection of collision
parts, than the Company. Accordingly, OEMs are in a position to exert pricing
and other competitive pressure on the Company. The distribution industry for
aftermarket collision parts is highly fragmented. The Company's competitors
generally are independently owned distributors having from one to three
distribution centers. The Company expects to encounter significant competition
in the future, including competition from OEMs, automobile dealerships,
distributors of salvage parts, buying groups and other large distributors.

The Company competes with OEMs on the basis of price and perceived product
quality, and it competes with distributors of aftermarket collision parts
primarily on the basis of the competitive advantages provided by its position
as a market leader, experienced executive management and service center
managers, entrepreneurial corporate culture, superior customer service, its
relationship with certain insurance companies, and, to a lesser extent, on the
basis of price.

The Company's chrome bumper plating operations compete in the wholesale
bumper distribution segment of the market with four companies, whom the
Company believes have greater regional sales than the Company. It also
competes with small chrome bumper platers or distributors in virtually every
geographical market in which it operates. The Company competes with small
chrome bumper platers and distributors primarily on the basis of quality and
service. Over the last 10 years, there has been a significant decrease in the
number of small bumper platers as a result of the decreasing use of chrome
plated bumpers on new automobiles and the increasing environmental
requirements for electroplaters. The Company believes that this trend will
continue, creating more sales opportunities for larger regional chrome bumper
platers, who are capable of meeting the increased financial and environmental
requirements of the future.

The Company also encounters competition from the OEM's who supply new
replacement bumpers to the collision repair market and it competes with these
OEM's on the basis of price and perceived product quality.

Government Regulation and Environmental Hazards

The Company is subject to increasing restrictions imposed by various
federal, state and local laws and regulations. Various state and federal
regulatory agencies, such as the Occupational Safety and Health Administration
and the EPA, have jurisdiction over the Company's operations with respect to
matters including worker safety, community and employee "right-to-know" laws,
and laws regarding clean air and water. In addition, in part as a result of
the State Farm decision and the attendant publicity, certain state
legislatures and regulators are considering imposing, or have imposed,
restrictions on the use of aftermarket collision parts. The General Accounting
Office ("GAO") report to the United States Congress, released in January 2001,
captioned "NHTSA's Ability to Detect and Recall Defective Replacement Crash
Parts is Limited" may result in hearings

in Congress and possible legislation which could be adverse to the interests
of Keystone. See "Cautionary Statements--Federal and State Action" below for
additional information about governmental activities with respect to
aftermarket collision replacement parts.

See "Cautionary Statements--Compliance with Governmental Regulations;
Environmental Hazards" below for information with respect to the Company's
environmental exposure.

Prior Ford Litigation

In 1987, Ford Motor Company ("Ford") filed suit against the Company on the
grounds that between 1982 and 1987, the Company had misrepresented the quality
of the aftermarket collision parts sold by it for Ford automobiles. In May
1992, Ford and the Company settled this lawsuit. As part of the settlement,
the Company and its insurance companies paid Ford $1.8 million, of which the
Company contributed $450,000, as damages and agreed to finance a one-year
corrective advertising campaign conducted by Ford using the Company's name. As
a result of this settlement and the corrective advertising campaign, certain
insurance companies ceased listing the Company as an approved supplier of
aftermarket collision parts. Currently, most major insurance companies list
the Company as an approved supplier of aftermarket collision parts, and all
major insurance companies reimburse the cost of collision repairs using the
Company's products. The Company's business is highly dependent on the
continued acceptance of aftermarket collision parts in general, and the
Company's products in particular, by insurers, collision repair shops,
consumers and governmental agencies. See "Cautionary Statements" below.

Employees

At May 30, 2001, the Company had 2,692 full-time employees, of whom 384 were
engaged in corporate management and administration, 1,203 in sales and
customer service, 579 in warehousing and shipping and 526 in manufacturing.
None of the Company's employees are covered by collective bargaining
agreements. The Company considers its relations with its employees to be
satisfactory.

Cautionary Statements

State Farm Decision and Pending Actions. In July 1997, certain individuals
initiated a class action lawsuit against State Farm in the Illinois Circuit
Court in Williamson County (Marion, Illinois), asserting claims for breach of
contract, consumer fraud and equitable relief relating to State Farm's then
practice of sometimes specifying the use of parts manufactured by sources
other than the original equipment manufacturer ("non-OEM crash parts") when
adjusting claims for the damage to insured vehicles. The Williamson County
Court certified a near-nationwide class. It was alleged that this practice
breached State Farm's insurance agreements with its policyholders and was a
violation of the Illinois Consumer Fraud and Deceptive Business Practices Act
because non-OEM crash parts are inherently inferior to OEM crash parts and,
consequently, vehicles are not restored to their "pre-loss condition" as
specified in their policy. In October 1999, after a lengthy trial, the jury
awarded the class damages in the amount of approximately $586 million and the
judge assessed punitive damages against State Farm of over $600 million. In
April 2001, the Appellate Court of Illinois, Fifth District, upheld the
verdict reducing damages by $130 million to an aggregate of $1.06 billion.

Shortly after the verdict in the Williamson County case, State Farm
suspended specifying most non-OEM crash parts used in connection with
repairing cars covered by their insurance. Effective November 8, 1999,
Nationwide Insurance and Farmers Insurance also temporarily suspended
specifying many non-OEM crash parts. However, in early 2001, both companies
announced that they were again going to specify certain aftermarket parts in
the repair of vehicles insured by them. See "Business--General" with respect
to Nationwide Insurance. The action of insurance companies following the State
Farm decision has had, and continues to have, a material adverse impact on the
Company's sales and net income. See "Management Discussion and Analysis of
Financial Condition and Result of Operations-General" below.

At the present time, lawsuits are pending in a number of states against
several insurance companies alleging violation of contractual provisions and
various laws and statutes relating to the specification of non-OEM crash parts
in connection with the repair of damaged vehicles. These cases have been
brought as class actions and generally involve two different legal theories.
One line of cases is similar to State Farm contending that non-OEM crash parts
do not restore a vehicle to their "pre-loss condition" as provided for in the
insurance policy. The other theory is that of "diminished value," with the
contention being that in addition to repairing the vehicle, the owner should
be compensated for the difference between the pre-loss value and the value
after the vehicle is repaired. In at least one pending action, the Company
believes that CAPA has been joined as a defendant in connection with their
certification of non-OEM crash parts.

While the Company was, or is, not a party to the State Farm lawsuit or the
other pending lawsuits, a substantial portion of the Company's business
consists of the distribution of non-OEM crash parts to collision repair shops
for the use in repairing automobiles, the vast majority of which are covered
by insurance policies. In the event that the State Farm verdict is repeated in
other similar cases or there is a substantial verdict upholding the diminished
value theory, and such cases are not overturned on appeal, with the result
that non-OEM crash parts are no longer specified by insurance companies to
repair insured vehicles, the aggregate cost to consumers will be substantial
and the impact on Keystone would be material and adverse. Once again, OEM's
would likely have monopoly pricing power with respect to many of the products
required to repair damaged vehicles.

The Company believes that substantially all of the non-OEM crash parts which
it distributes are of similar quality to OEM crash parts and when installed in
a competent manner by collision repair shops, vehicles are restored to their
"pre-loss condition." In addition, the Company provides a warranty with
respect to the parts it distributes for as long as the owner at the time
repairs are made continues to own the vehicle.

Federal and State Action. During the past four years, legislation was
introduced or considered in over 25 states seeking to prohibit or limit the
use of aftermarket parts in collision repair work and/or require special
disclosure before using aftermarket parts. Similar legislation has been
introduced in many states during 2001 and the Company anticipates that the
introduction of such legislation will continue in the foreseeable future.
While legislation has been passed in eight states requiring some form of
consent from the vehicle owner prior to installing aftermarket collision
replacements parts, to date, state laws have not had a material impact on the
Company's overall business. If a number of states were to adopt legislation
prohibiting or restricting the use of non-OEM crash parts, it could have a
material adverse impact on the Company.

During 2000, persons with a business interest in restricting the use of non-
OEM parts have also sought help from insurance regulators in at least three
states to attempt to do administratively what to date has not be accomplished
legislatively. In Florida, the Commissioner of the Department of Agriculture &
Consumer Services, has taken action designed to eliminate the use of non-OEM
crash parts in connection with insured repairs. The Commissioner has also
brought a legal action against an insurance company for specifying the use of
non-OEM parts. These actions have had a material adverse impact on the
Company's sales in Florida. Action in the other two states is ongoing and the
Company cannot predict the outcome.

In addition, during 2000, a U.S. Congressman requested that the General
Accounting Office ("GAO") review the role of the National Highway and
Transportation Safety Administration in regulating the safety and quality of
replacement automotive parts. A GAO report was released in January 2001. The
report may lead to congressional hearings and possible future legislation,
which could be adverse to the interests of the Company.

Management Information Systems. In October 1998, the Company entered into an
agreement with a vendor for the purchase of a software package to be installed
on an enterprise-wide basis. The Company has also entered into agreements with
various service providers and integrators to assist with the installation of
the package. To date, the Company has expended an aggregate of approximately
$9.4 million on the purchase of hardware and the software implementation
relating to the installation of the new enterprise software package. In fiscal
year 2001, the Company wrote down approximately $4.7 million of these costs
under SFAS No. 121.

To date, the costs have been paid using funds generated from operating cash
flow or borrowings under the Company's line of credit and it is anticipated
that future costs will be paid from existing working capital, cash flow from
operations or borrowings under the Company's line of credit.

At the present time, the Company estimates that the new enterprise software
system, which will consolidate the Company's various systems and address a
number of management issues, will be installed and operating company-wide in
18 to 24 months, at an additional cost of between $8.0 million and $10.0
million. The estimated cost of the projects described above are based on
management's best estimates, which were derived utilizing numerous assumptions
of future events, including the continued availability of certain resources
and other factors. However, there can be no guarantee that these time or cost
estimates will be achieved, and actual results could differ materially from
those anticipated. Specific factors that might cause such material differences
include, but are not limited to, the availability and cost of personnel
trained in this area, and the inherent difficulty in integrating new computer
systems into the Company's existing operations and the availability and cost
of additional hardware which may be needed to complete the installation.

Continued Acceptance of Aftermarket Collision Replacement Parts. Based upon
industry sources, the Company estimates that approximately 87% of automobile
collision repair work is paid for in part by insurance; accordingly, the
Company's business is highly dependent upon the continued acceptance of
aftermarket collision replacement parts by the insurance industry and the
governmental agencies that regulate insurance companies and the ability of
insurers to recommend the use of such parts for collision repair jobs, as
opposed to OEM parts. As described above, the use of many of the products
distributed by the Company is being disputed in various forums.

Dependence on Key and Foreign Suppliers. The Company is dependent on a
relatively small number of suppliers. Although alternative suppliers exist for
substantially all products distributed by the Company, the loss of any one
supplier could have a material adverse effect on the Company until alternative
suppliers are located and have commenced providing products. In fiscal 2001,
approximately 85% of the products distributed by the Company were manufactured
in the United States or Canada and approximately 15% were imported directly
from manufacturers in Taiwan. As a result, the Company's operations are
subject to the customary risks of doing business abroad, including, among
other things, transportation delays, political instability, expropriation,
currency fluctuations and the imposition of tariffs, import and export
controls and other non-tariff barriers (including changes in the allocation of
quotas), as well as the uncertainty regarding future relations between China
and Taiwan. The percentage of imported products may decline in the future if
sales of autoglass, paint and related supplies and equipment, and
remanufactured alloy wheels, which are manufactured in the United States,
continue to grow. Any significant disruption in the Company's Taiwanese
sources of supply or in its relationship with its suppliers located in Taiwan
could have a material adverse effect on the Company.

Competition. The Company competes directly with, and encounters intense
competition from, OEMs, all of which have substantially greater financial,
distribution, marketing and other resources, including greater brand
recognition and a broader selection of collision replacement parts.
Accordingly, OEMs are in a position to exert pricing and other competitive
pressures on the Company and other independent distributors, which could have
a material adverse effect on the results of operations of the Company. The
aftermarket collision replacement parts distribution industry is highly
fragmented. Typically, the Company's other competitors are independently owned
distributors having from one to three distribution centers. The Company
anticipates that it will encounter significant competition in the future,
including competition from automobile dealerships, distributors of salvage
parts, buying groups and other large distributors.

Compliance with Government Regulations; Environmental Hazards. The Company
is subject to increasing restrictions imposed by various federal, state and
local laws and regulations. Various state and federal regulatory agencies,
such as the Occupational Safety and Health Administration and the United
States Environmental Protection Agency (the "EPA"), have jurisdiction over the
Company's operations with respect to matters including worker safety,
community and employee "right-to-know" laws, and laws regarding clean air and
water. Under various federal, state and local laws and regulations, an owner
or lessee of real estate or the operator

of a business may be liable for the costs of removal or remediation of certain
hazardous or toxic substances located on or in, or emanating from, property
owned or used in the business, as well as related costs of investigation and
property damage. Such laws often impose such liability without regard to
whether the owner, lessee or operator knew of, or was responsible for, the
presence of such hazardous or toxic substances. Other than as described below
with respect to its bumper plating operations, the Company does not currently
generate substantial hazardous waste in the ordinary course of its business.
The Company believes that it currently is in substantial compliance with all
applicable laws and regulations, and is not aware of any material
environmental problem at any of its current or former facilities. No assurance
can be given, however, that the Company's prior activities or the activities
of a prior owner or operator of an acquired service center or other facility
did not create a material environmental problem for which the Company could be
responsible or that future uses or conditions (including, without limitation,
changes in applicable laws and regulations) will not result in material
environmental liability to the Company. Furthermore, compliance with
legislative or regulatory changes may cause future increases in the Company's
operating costs or otherwise adversely affect operations. Certain of the
Company's products, such as paints and solvents, are highly flammable.
Accordingly, the storage and transportation of these materials expose the
Company to the inherent risk of fire.

The Company acquired North Star's bumper plating operations in March 1997
and Midwest Bumper's plating operations in March 1999. The Company previously
conducted similar operations at 12 sites, 11 of which were closed between 1983
and 1993 and one of which was closed in 2000. The Company's bumper plating
operations, which use a number of hazardous materials, are subject to a
variety of federal and state laws and regulations relating to environmental
matters, including the release of hazardous materials into the air, water and
soil. The Company endeavors to ensure that its bumper plating operations
comply with applicable environmental laws and regulations. To date, compliance
with such laws and regulations has not had a material effect on the Company's
capital expenditures, earnings or competitive position. While the Company is
currently doing remediation at the site of its former Newark, New Jersey
plating facility (closed in 2000), the Company does not anticipate material
expenditures in completing that operation. No material capital expenditures
with respect to the Company's bumper plating operations are anticipated during
the next 12 months. Although the Company believes it is in substantial
compliance with all applicable environmental laws and regulations relating to
its bumper plating operations, there can be no assurance that the Company's
current or former operations have not, or will not in the future, violate such
laws and regulations or that compliance with such laws and regulations will
not have a material adverse effect on the Company's operations. Any
inadvertent mishandling of hazardous materials or similar incident could
result in costly remediation efforts and administrative and legal proceedings,
which could materially and adversely affect the Company's business and results
of operations. In addition, future environmental regulations could add to
overall costs of the Company's bumper plating business or otherwise materially
and adversely affect these operations.

Decline in the Number of Collision Repairs. The number of collision repairs
has declined in recent years, and may continue to do so, due to, among other
things, automotive safety improvements, more rigorous enforcement of stricter
drunk driving laws resulting in fewer accidents and the increase in unit body
construction and higher collision repair costs resulting in a larger number of
automobiles being declared a total loss in lieu of being repaired. The
continuation of such decline may have a material adverse effect on the
Company.

Volatility of Stock Price. The trading price of the Company's Common Stock
may be subject to significant fluctuations as a result of variations in the
Company's actual or anticipated operating results, changes in general market
conditions and other factors. In recent years, the stock market generally has
experienced significant price and volume fluctuations which often have been
unrelated or disproportionate to the operating performance of a specific
company or industry. There can be no assurance that the market price of the
Company's Common Stock will not decline below the current market price. It is
possible that in some future quarter, the Company's operating results will be
below the expectations of public market analysts or investors. In such event,
the price of the Company Common Stock may be materially and adversely
affected.

ITEM 2. PROPERTIES

The Company's principal executive offices are located in Pomona, California,
contain approximately 20,000 square feet and are owned by the Company. In
addition, the Company owns facilities used as service centers in Chicago,
Illinois; Bethlehem, Pennsylvania; Denver, Colorado; New Albany, Indiana and
Palmyra, New Jersey, of which two of the facilities also serve as regional
hubs, three serve as wheel remanufacturing facilities and three serve as
plastic bumper recycling facilities. The Company leases its remaining
facilities.

The Company's regional hub facilities range from approximately 8,800 square
feet to 225,000 square feet. Its service center facilities range from
approximately 2,500 square feet to 75,000 square feet. All of its leased
properties are leased for terms expiring on dates ranging from on or about the
date hereof to the year 2015, many with options to extend the lease term. The
Company believes that no single lease is material to its operations, its
facilities are adequate for the foreseeable future and alternative sites
presently are available at market rates.

Of the Company's service centers, six are leased from parties in whom
current officers or directors of the Company have an interest. See "Item 13"
below. The Company believes that the terms and conditions of leases with
affiliated parties are no less favorable to the Company than could have been
obtained from unaffiliated parties in arm's-length transactions at the time of
the execution of such leases.

ITEM 3. LEGAL PROCEEDINGS

The Company is from time to time involved in litigation incidental to the
conduct of its business. The Company currently is not a party to any material
pending litigation.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None.

PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS

The Company's Common Stock began trading publicly on The Nasdaq Stock Market
under the symbol "KEYS" on June 20, 1996. The following table sets forth, for
the periods indicated, the range of high and low sale prices for Keystone's
Common Stock as reported by The Nasdaq Stock Market.

High Low
------ ------

Fiscal 2000
First Quarter............................................... $19.25 $14.13
Second Quarter.............................................. 19.00 10.88
Third Quarter............................................... 10.13 5.38
Fourth Quarter.............................................. 7.00 4.88
Fiscal 2001
First Quarter............................................... 7.38 5.06
Second Quarter.............................................. 6.94 4.81
Third Quarter............................................... 7.00 4.56
Fourth Quarter.............................................. 8.38 6.50
Fiscal 2002
First Quarter (through June 20, 2001)....................... 11.99 6.94

On June 20, 2001, the last reported sale price for the Common Stock of the
Company, as reported on The Nasdaq Stock Market, was $10.00 per share. As of
June 20, 2001, there were approximately 421 shareholders of record of the
Common Stock.

The Company has never paid cash dividends on its Common Stock. The Company
currently intends to retain any future earnings to provide funds to operate
and expand its business and does not anticipate paying cash dividends on its
Common Stock in the foreseeable future. The payment of dividends is within the
discretion of the Company's Board of Directors, and will depend upon, among
other things, the Company's earnings, financial condition and capital
requirements, general business conditions and any restrictions in credit
agreements.

ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA

The following selected consolidated financial data should be read in
conjunction with the consolidated financial statements and notes thereto and
Item 7, "Management's Discussion and Analysis Financial Condition and Results
of Operations" also included elsewhere herein.

Fiscal year ended
--------------------------------------------------
March March March March March
28, 1997 27, 1998 26, 1999 31, 2000(1) 30, 2001
-------- -------- -------- -------- --------
(In thousands, except per share amounts)

Consolidated Statement of
Operations Data:
Net sales.................. $223,806 $263,802 $332,047 $372,466 $351,845
Cost of sales.............. 130,590 149,855 186,150 211,840 204,073
-------- -------- -------- -------- --------
Gross profit............... 93,216 113,947 145,897 160,626 147,772
Selling and distribution
expenses.................. 61,063 73,551 93,169 110,976 110,170
General and administrative
expenses.................. 15,699 18,101 24,873 30,800 30,155
Non-recurring expenses..... 905 1,147 1,814 3,881 7,104
-------- -------- -------- -------- --------
Operating income........... 15,549 21,148 26,041 14,969 343
Other income............... 373 1,086 3,617 2,613 2,037
Interest expense........... (1,477) (504) (50) (954) (1,456)
-------- -------- -------- -------- --------
Income before income
taxes..................... 14,445 21,730 29,608 16,628 924
Income taxes............... 4,435 7,497 11,843 6,810 1,401
-------- -------- -------- -------- --------
Net income (loss).......... $ 10,010 $ 14,233 $ 17,765 $ 9,809 $ (477)
======== ======== ======== ======== ========
Net income (loss) per
share:
Basic.................... $ 0.88 $ 1.02 $ 1.06 $ 0.62 $ (.03)
======== ======== ======== ======== ========
Diluted.................. $ 0.87 $ 1.01 $ 1.05 $ 0.62 $ (.03)
======== ======== ======== ======== ========
Weighted average common
shares outstanding:
Basic.................... 11,408 13,915 16,784 15,899 14,420
======== ======== ======== ======== ========
Diluted.................. 11,474 14,105 16,913 15,917 14,420
======== ======== ======== ======== ========
Pro forma information
(unaudited)(2):
Net income (loss), as
previously reported..... $ 10,010 $ 14,233 $ 17,765 $ 9,809 $ (477)
Pro forma tax
adjustment.............. (1,288) (1,345) -- -- --
-------- -------- -------- -------- --------
Pro forma net income
(loss).................. $ 8,722 $ 12,888 $ 17,765 $ 9,809 $ (477)
======== ======== ======== ======== ========
Pro forma net income (loss)
per share:
Basic.................... $ 0.76 $ 0.93 $ 1.06 $ 0.62 $ (.03)
======== ======== ======== ======== ========
Diluted.................. $ 0.76 $ 0.91 $ 1.05 $ 0.62 $ (.03)
======== ======== ======== ======== ========
Consolidated Balance Sheet
Data:
Working capital............ $ 30,154 $ 72,454 $105,330 $ 86,152 $ 88,393
Total assets............... 87,183 119,696 194,094 183,817 183,756
Total current liabilities.. 38,240 21,539 26,551 31,869 35,283
Long-term debt............. 2,087 503 100 68 49
Shareholders' equity....... 46,453 97,228 163,205 150,195 145,941

--------
(1) Fiscal 2000 contained 53 weeks; all other periods contained 52 weeks.

(2) Pro forma information gives effect to an income tax adjustment to reflect
taxation of the income of two corporations acquired in January 1998
(accounted for as poolings of interests), as "C" corporations, rather than
"S" corporations, at an estimated statutory rate of approximately 39%.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS

The following discussion and analysis is qualified in its entirety by, and
should be read in conjunction with, the "Selected Consolidated Financial Data"
as set forth in Item 6 above and the financial statements and notes thereto
included in Item 8 below. Except for the historical information contained
herein, the matters addressed herein constitute "forward-looking statements"
within the meaning of Section 27A of the Securities Act and Section 21E of the
Exchange Act. Forward-looking statements, such as statements of the Company's
strategies, plans, objectives, expectations and intentions, are subject to a
variety of risks and uncertainties that could cause the Company's actual
results to differ materially from those anticipated in these forward-looking
statements. The Cautionary Statements set forth in Item 1 above should be read
as being applicable to all related forward-looking statements wherever they
appear herein.

General

Fiscal 2000 contained 53 weeks as compared to 52 weeks for the other fiscal
years set forth in Item 6 above. Consequently, comparisons of results may not
be meaningful.

The results of operations for fiscal 2001 and 2000 include the results with
respect to four acquisitions completed subsequent to March 26, 1999, accounted
for as "purchases," whereas fiscal 1999 does not include any results of
operations for those acquired entities. See "Recent Acquisitions" below. In
addition, the results of operations for fiscal 1999 include the results for
Republic Automotive Parts, Inc. ("Republic") only for the period subsequent to
the acquisition (June 27, 1998) and for the Midwest Bumper Group only for the
period subsequent to the acquisition (January 4, 1999), whereas the results of
operations for fiscal 2001 and 2000 include the results for those operations
for the entire period.

As a result of the verdict in the State Farm class action in October 1999
and the fact that numerous other class actions are pending, State Farm,
Nationwide Insurance, Farmers Insurance and certain other insurers temporarily
suspended specifying the use of many aftermarket collision replacement parts
in connection with the repair of vehicles which they insure. See "Cautionary
Statements" above. These suspensions had a material, adverse effect on the
Company's revenues and earnings for fiscal 2001 and 2000. However, during the
last quarter of fiscal 2001, certain insurance companies again began
specifying some aftermarket parts.

Acquisitions

In June 1998, the Company completed the acquisition of Republic and issued
2,907,000 shares of its Common Stock to the former Republic shareholders. The
total purchase price amounted to $63.1 million and the acquisition of Republic
was accounted for under the purchase method of accounting. Following the
Republic acquisition, the Company sold the net operating assets of Republic's
hard parts operations in a series of transactions for cash.

Also during fiscal 1999, the Company acquired the assets of the following
businesses: Unico Corporation and Greenville Unico II Corporation, a
distributor of aftermarket collision replacement parts with operations in
North and South Carolina, in August 1998; Clark Supply Corporation, a
distributor of paint and related supplies doing business in Iowa, in November
1998; California Chrome, a distributor of aftermarket collision replacement
parts with operations in central California, in January 1999; Inventory
Recovery Systems, Inc., a distributor of aftermarket collision replacement
parts with operations in Michigan, in January 1999; 1-800 Used Rim, Inc.. a
distributor of wheels for automobiles and light trucks with operations in
southern California, in March 1999; and Midwest Bumper Company, International
Warehouse Distributing Co., Midwest Bumper Company of Lansing, Collision Parts
Distributors Co. and Carhart Products, Inc., affiliated distributors of
aftermarket collision replacement parts with operations in Michigan, in March
1999. All of these acquisitions were accounted for under the purchase method
of accounting and the consolidated financial statements include the results of
operations for each business for all periods subsequent to the applicable
purchase date.

During fiscal 2000, the Company acquired certain assets of the following
businesses: Quality Bumpers, LLC, a distributor of plastic and steel bumpers
with operations in Alabama, in May 1999; Nordan Products Division, Inc. and
Nordan Distributors, Inc., distributors of aftermarket collision replacement
parts with operations in Washington and Vancouver, British Columbia, in May
1999; Supreme Bumpers Inc., a distributor of recycled or remanufactured
bumpers in Ohio and Michigan, in October 1999 and Auto Body Supply Co., Inc. a
distributor of aftermarket collision replacement parts in Pennsylvania, in
November 1999. All of these acquisitions were accounted for under the purchase
method of accounting and the consolidated financial statements include the
results of operations for each business for all periods subsequent to the
applicable purchase date.

During fiscal 2001, the Company acquired certain assets of Johnstown Bumper
Mart, Inc., a small distributor of aftermarket collision replacement parts
with operations in Pennsylvania.

Results of Operations

The following table sets forth, for the periods indicated, certain selected
statement of operations items as a percentage of net sales.

Fiscal Year Ended
-----------------------------
March 26, March 31, March 30,
1999 2000 2001
--------- --------- ---------

Net sales...................................... 100.0% 100.0% 100.0 %
Cost of sales.................................. 56.1 56.9 58.0
----- ----- -----
Gross profit................................... 43.9 43.1 42.0
Selling and distribution expenses.............. 28.1 29.8 31.3
General and administrative expenses............ 7.5 8.3 8.6
Non-recurring expenses......................... 0.5 1.0 2.0
----- ----- -----
Operating income............................... 7.8 4.0 0.1
Other income................................... 1.1 0.7 0.6
Interest expense............................... 0.0 0.3 0.4
----- ----- -----
Income before income taxes..................... 8.9 4.4 0.3
Income taxes................................... 3.5 1.8 0.4
----- ----- -----
Net income (loss).............................. 5.4% 2.6% (0.1)%
===== ===== =====

Fiscal 2001 Compared to Fiscal 2000

Net sales were $351.8 million in fiscal 2001 compared to $372.5 million in
fiscal 2000, a decrease of $20.7 million, or 5.5%. This decrease was primarily
due to decreases of $9.5 million in sales of automotive body parts and $11.7
million in sales of new and recycled bumpers, which represent decreases of
approximately 5.9%, and 9.9%, respectively, compared to fiscal 2000, offset in
part by an increase of $1.7 million in sales of paint and related materials,
which represents an increase of 3.0%. In addition, the Company sold $24.7
million of remanufactured alloy wheels in fiscal 2001 compared to $23.0
million in the prior fiscal year, an increase of 7.3%.

On a same store sales basis, sales were down approximately 3.7% for the
year, primarily as a result of the impact of the State Farm decision and
subsequent actions by certain insurance companies. For the last six months of
fiscal 2001 and the month of March 2001, same store sales were up
approximately 2.1% and 6.5%, respectively, primarily as a result of a severe
winter in the East and South and the fact that certain insurance companies
once again began specifying aftermarket parts. See "General" above.

Gross profit decreased to $147.8 million (42.0% of net sales) in fiscal 2001
from $160.6 million (43.1% of net sales) in fiscal 2000, a decrease of 8.0%,
primarily as a result of the decrease in net sales. The Company's

gross profit margin decreased, primarily as a result of price competition,
product mix and decreased sales. The Company's gross profit margin has
fluctuated, and is expected to continue to fluctuate, depending on a number of
factors, including changes in product mix, competition and the strength of the
United States dollar relative to the Taiwanese dollar.

Selling and distribution expenses decreased to $110.2 million (31.3% of net
sales) in fiscal 2001 from $111.0 million (29.8% of net sales) in fiscal 2000,
a decrease of 0.7%. The increase in these expenses in fiscal 2001 as a
percentage of net sales was generally the result of reduced revenue across the
entire organization as a result of the impact of the State Farm verdict, due
to the relative fixed nature of certain of these costs, and higher fuel costs.

General and administrative expenses decreased to $30.2 million (8.6% of net
sales) in fiscal 2001 from $30.8 million (8.3% of net sales) in fiscal 2000, a
decrease of 2.1%. The increase in these expenses in fiscal 2001 as a
percentage of net sales resulted from a number of factors, including an
increase in employee benefit costs and decreased sales, offset by reduced
headcount.

During fiscal 2001, the Company recognized approximately $7.1 million of
nonrecurring expenses as compared to $3.9 million in fiscal 2000. In fiscal
2001, these expenses were primarily the result of a write-down of certain
computer related expenses ($4.7 million) and the Company's investment in an
Internet business-to-business service provider ($1.0 million) and the
recording of a reserve for idle leased facilities relating to the closing or
consolidation of three locations ($1.5 million). In addition, the Company
recorded a reserve of $150,000 relating to the estimated environmental clean-
up costs in connection with the closing of a plating facility in fiscal 2001.
In fiscal 2000, these expenses were the result of write-downs of goodwill and
covenants not to compete relating to certain acquisitions and a write-off
relating to tooling acquired in an acquisition.

While the tax provision in fiscal 2000 was approximately 41.0% of income
before income taxes, the tax provision in fiscal 2001 was 151.6%. Part of the
increase is the result of the fact that goodwill from tax-free acquisitions
(which is not deductible for tax purposes) is spread over a lower income base
and that approximately $0.6 million of the nonrecurring expense write-offs
were also not deductible for tax purposes.

As a result of the above factors, the Company experienced a decrease in net
income, incurring a loss of $476,704 (0.1% of net sales) in fiscal 2001 as
compared to net income of $9.8 million (2.6% of net sales) in fiscal 2000.

Fiscal 2000 Compared to Fiscal 1999

Net sales were $372.5 million in fiscal 2000 compared to $332.0 million in
fiscal 1999, an increase of $40.4 million, or 12.2%. This increase was due
primarily to an increase of $14.3 million in sales of automotive body parts,
an increase of $7.3 million in sales of paint and related materials and an
increase of $15.2 million in sales of new and recycled bumpers, which
represent increases of approximately 9.6%, 14.6% and 14.8%, respectively, over
fiscal 1999. In addition, the Company sold $23.0 million of remanufactured
alloy wheels in fiscal 2000 compared to $17.4 million in the prior fiscal
year, an increase of 32.5%.

The increased net sales were attributable primarily to an increase in the
number of service centers in operation primarily as a result of acquisitions.
Price increases were not a material factor in increased net sales. On a same
store sales basis, sales were down approximately 1.0% for the year and
approximately 7.0% for the last six months of fiscal 2000, as a result of the
State Farm decision and subsequent actions by certain insurance companies. See
"General" above. Management anticipates recent sales trends may continue for
the foreseeable future, subject to the continuing impact of the State Farm
decision.

Gross profit increased to $160.6 million (43.1% of net sales) in fiscal 2000
from $145.9 million (43.9% of net sales) in fiscal 1999, an increase of 10.1%,
primarily as a result of the increase in net sales. The Company's gross profit
margin decreased, primarily as a result of higher freight costs with respect
to product shipped from

overseas, a shift in product mix as fewer higher margin collision parts are
being written on repair estimates and a write off of excess inventories. The
Company's gross profit margin has fluctuated, and is expected to continue to
fluctuate, depending on a number of factors, including changes in product mix,
competition and the strength of the United States dollar relative to the
Taiwanese dollar.

Selling and distribution expenses increased to $111.0 million (29.8% of net
sales) in fiscal 2000 from $93.2 million (28.1% of net sales) in fiscal 1999,
an increase of 19.1%. The increase in these expenses in fiscal 2000 as a
percentage of net sales was generally the result of reduced revenue across the
entire organization as a result of State Farm, Farmers Insurance and
Nationwide restricting usage of aftermarket collision replacement parts. The
Company was staffed in anticipation of a normal winter selling season which
did not materialize. Higher fuel costs during the current fiscal year may
result in increases in selling and distribution expenses as a percentage of
net sales.

General and administrative expenses increased to $30.8 million (8.3% of net
sales) in fiscal 2000 from $24.9 million (7.5% of net sales) in fiscal 1999,
an increase of 23.8%. The increase in these expenses in fiscal 2000 as a
percentage of net sales resulted from a number of factors, including an
increase in amortization of goodwill and other intangibles. Amortization of
goodwill and other intangibles, as a result of acquisitions, increased to $7.3
million in fiscal 2000 compared to approximately $2.1 million in fiscal 1999,
due to the application of purchase accounting.

During fiscal 2000, the Company incurred approximately $3.9 million of
nonrecurring expenses as compared to $1.8 million in fiscal 1999. In fiscal
1999, these expenses were the result of a write-off of an abandoned computer
project of $700,000, $650,000 related to consolidating duplicate warehouse
facilities and $450,000 of severance payments. In fiscal 2000, these expenses
were the result of write-downs of goodwill and covenants not to compete
aggregating $3.3 million relating to certain acquisitions and a write-off of
approximately $600,000 relating to tooling acquired in an acquisition.

During fiscal 2000, other income decreased from $3.6 million to $2.6
million. This decrease is primarily attributable to a decrease in interest
income earned on invested cash.

As a result of the above factors, net income decreased to $9.8 million (2.6%
of net sales) in fiscal 2000 from $17.8 million (5.4% of net sales) in fiscal
1999.

Variability of Quarterly Results and Seasonality

The Company has experienced, and expects to continue to experience,
variations in its sales and profitability from quarter to quarter due, in
part, to the timing and integration of acquisitions and the seasonal nature of
Keystone's business. The number of collision repairs is directly impacted by
the weather. Accordingly, the Company's sales generally are highest during the
five-month period from December to April. The impact of seasonality has
reduced somewhat as Keystone has become more geographically diversified. Other
factors which influence quarterly variations include the reduced number of
business days during the holiday seasons, the timing of the introduction of
new products, the level of consumer acceptance of new products, general
economic conditions that affect consumer spending, the timing of supplier
price changes and the timing of expenditures in anticipation of increased
sales and customer delivery requirements.

Liquidity and Capital Resources

The Company's primary need for funds over the past two years has been to
finance the growth of inventory and accounts receivable and to develop and
implement an enterprise-wide management information system. Over the next 18
to 24 months, the Company estimates that it will spend an additional $8.0
million to $10.0 million to complete the installation and implementation of
the management information system. At March 30, 2001, working capital was
$88.4 million compared to $86.2 million at March 31, 2000. The increase in
working capital is primarily the result of increases in inventory, accounts
receivable and deferred taxes, offset in part by increased

borrowing under the Company's line of credit. The Company has been financing
its working capital requirements from its cash flow from operations and
advances drawn under its line of credit.

During fiscal 2001, the Company's cash and cash equivalents increased by
$121,000. This increase is the result of an increase in cash provided by
operating activities of $10.2 million from a variety of sources, primarily the
non-cash impact of depreciation and amortization and write-downs of impaired
assets; offset in part by (i) a decrease in cash used in investing activities
of $9.1 million, primarily as a result of cash used to purchase property and
equipment primarily related to the implementation of the Company's enterprise
software package; and (ii) a decrease in cash provided by financing activities
of $1.0 million, primarily as a result of the repurchase of shares of the
Company's Common Stock, offset in part by paydowns with respect to the
Company's borrowings.

The Company has in place a revolving line of credit with its commercial
lender that provides for a $30 million unsecured credit facility that expires
in November 2001. Advances under the revolving line of credit bear interest at
LIBOR plus 1.0%. At June 20, 2001, $13.7 million had been drawn down under the
line of credit. The line of credit is subject to certain restrictive covenants
set forth in the loan agreement, which requires that the Company maintain
certain financial ratios. The Company was not in compliance with all such
covenants as of March 30, 2001, but obtained a waiver from its commercial
lender prior to the filing of this Annual Report.

In fiscal 1999, the Company initiated a stock repurchase program. Through
June 20, 2001, an aggregate of 3.5 million shares had been repurchased for
$45.8 million, an average of $13.01 per share. During fiscal 2001, 533,000
shares were repurchased for $3.2 million, an average of $6.03 per share.

The Company believes that its existing working capital, anticipated cash
flow from operations and funds available under its line of credit will enable
it to finance its operations, including implementation of the management
information system, and possible acquisitions, for at least the next 12
months.

Inflation

The Company does not believe that the relatively moderate rates of inflation
over the past three years have had a significant effect on its net sales or
its profitability.

Goodwill

Goodwill, which represents the excess of cost over the fair value of net
assets acquired, amounted to $33.5 million at March 30, 2001, or approximately
18.2% of total assets or 23.0% of consolidated shareholders' equity. The
amortization of goodwill in fiscal 2001 was approximately $1.6 million, or
approximately 177.0% of pretax income. The Company's estimate of the useful
life of goodwill of between 15 and 30 years is considered appropriate due to
the long-term nature of the business, including its customers, supply sources
and longevity of operations. The risk associated with the carrying value of
goodwill is whether future operating income (before amortization of goodwill)
will be sufficient on an undiscounted basis to recover the carrying value. The
Company reviews the recoverability of goodwill whenever significant events or
changes occur which might impair the recovery of recorded costs. The
measurement of possible impairment is based on either significant losses of an
entity or the inability to recover the balance of the long-lived asset from
expected future operating cash flows on an undiscounted basis. If an
impairment exists, the amount of such impairment would be calculated based
upon the discounted cash flows or the market values compared to the recorded
costs. In management's opinion, the recorded amounts for goodwill are
recoverable and no impairment existed at March 30, 2001. However, any
significant change in the useful lives of goodwill, as estimated by
management, or any changes to accounting for goodwill as new accounting
standards are issued in the future, could have a material adverse effect on
future results of operations and financial condition.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

The Company's results of operations are exposed to changes in interest rates
primarily with respect to borrowings under its credit facility, where interest
rates are tied to the prime rate or LIBOR. Under its current policies, the
Company does not use interest rate derivative instruments to manage exposure
to interest rate changes. Based on the current levels of debt, the exposure to
interest rate fluctuations is not considered to be material. The Company is
also exposed to currency fluctuations, primarily with respect to its product
purchases in Taiwan. While all transactions with Taiwan are conducted in U.S.
Dollars, changes in the relationship between the U.S. dollar and New Taiwan
dollars might impact the price of products purchased in Taiwan. The Company
might not be able to pass on any price increases to customers. Under its
present policies, the Company does not attempt to hedge its currency exchange
rate exposure.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

INDEX TO FINANCIAL STATEMENTS

KEYSTONE AUTOMOTIVE INDUSTRIES, INC.

Report of Independent Auditors............................................ 22
Consolidated Balance Sheets at March 30, 2001 and March 31, 2000.......... 23
Consolidated Statements of Operations for the years ended March 30, 2001,
March 31, 2000 and March 26, 1999........................................ 24
Consolidated Statements of Shareholders' Equity for the years ended March
30, 2001, March 31, 2000 and March 26, 1999.............................. 25
Consolidated Statements of Cash Flows for the years ended March 30, 2001,
March 31, 2000 and March 26, 1999........................................ 26
Notes to Consolidated Financial Statements................................ 27

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 30, 2001 and March
31, 2000, and the related consolidated statements of operations, shareholders'
equity, and cash flows for each of the three years in the period ended March
30, 2001. Our audits also included the financial statement schedule listed in
the index at 14(a). These financial statements and the financial statement
schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and
perform the audit 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 provide a
reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Keystone
Automotive Industries, Inc. at March 30, 2001 and March 31, 2000 and the
consolidated results of its operations and its cash flows for each of the
three years in the period ended March 30, 2001, in conformity with accounting
principles generally accepted in the United States. Also, in our opinion the
related financial statement schedule, when considered in relation to the basic
financial statements taken as a whole, presents fairly, in all material
respects the information set forth therein.

/s/ Ernst & Young LLP

Los Angeles, California
June 1, 2001

KEYSTONE AUTOMOTIVE INDUSTRIES, INC.

CONSOLIDATED BALANCE SHEETS
(in thousands, except share amounts)

March 30, March 31,
2001 2000
--------- ---------

ASSETS
------
Current assets:
Cash and cash equivalents................................. $ 3,005 $ 2,884
Accounts receivable, less allowance for doubtful accounts
of $1,029 in 2001 and $1,145 in 2000..................... 29,702 27,644
Inventories, primarily finished goods..................... 82,499 80,176
Prepaid expenses and other current assets................. 2,392 3,650
Deferred taxes............................................ 6,078 3,667
-------- --------
Total current assets.................................. 123,676 118,021
Property, plant and equipment, at cost:
Land...................................................... 519 519
Buildings and leasehold improvements...................... 10,446 10,086
Machinery and equipment................................... 24,411 23,759
Furniture and fixtures.................................... 12,251 11,616
-------- --------
47,627 45,980
Accumulated depreciation and amortization................. (26,357) (22,391)
-------- --------
21,270 23,589
Goodwill, net of accumulated amortization of $4,773 in 2001
and $3,274 in 2000........................................ 33,531 35,204
Other intangibles, net of accumulated amortization of
$2,275 in 2001 and $3,123 in 2000......................... 1,168 1,647
Other assets............................................... 1,387 2,242
Deferred taxes............................................. 2,724 3,114
-------- --------
Total assets.......................................... $183,756 $183,817
======== ========

LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Current liabilities:
Credit facility........................................... $ 14,880 $ 12,500
Accounts payable.......................................... 12,070 12,693
Accrued salaries, wages and related benefits.............. 5,114 5,098
Other accrued liabilities................................. 3,179 1,461
Long-term debt, due within one year....................... 40 117
-------- --------
Total current liabilities............................. 35,283 31,869
Long-term debt, less current maturities.................... 49 68
Other long-term liabilities................................ 2,483 1,685
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--50,000,000
Issued and outstanding shares--14,359,000 in 2001 and
14,892,000 in 2000, at stated value.................... 78,581 81,817
Warrants.................................................. 236 236
Additional paid-in capital................................ 1,260 1,260
Retained earnings......................................... 66,405 66,882
Accumulated other comprehensive loss...................... (541) --
-------- --------
Total shareholders' equity............................ 145,941 150,195
-------- --------
Total liabilities and shareholders' equity............ $183,756 $183,817
======== ========

See accompanying notes.

KEYSTONE AUTOMOTIVE INDUSTRIES, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share and share amounts)

Year ended
-------------------------------------
March 30, March 31, March 26,
2001 2000 1999
----------- ----------- -----------

Net sales.............................. $ 351,845 $ 372,466 $ 332,047
Cost of sales.......................... 204,073 211,840 186,150
----------- ----------- -----------
Gross profit........................... 147,772 160,626 145,897
Operating expenses:
Selling and distribution............. 110,170 110,976 93,169
General and administrative........... 30,155 30,800 24,873
Non-recurring........................ 7,104 3,881 1,814
----------- ----------- -----------
147,429 145,657 119,856
----------- ----------- -----------
Operating income....................... 343 14,969 26,041
Other income........................... 2,037 2,613 3,617
Interest expense....................... (1,456) (954) (50)
----------- ----------- -----------
Income before income taxes............. 924 16,628 29,608
Income taxes........................... 1,401 6,819 11,843
----------- ----------- -----------
Net (loss) income...................... $ (477) $ 9,809 $ 17,765
=========== =========== ===========
Net (loss) income per share--basic..... $ (0.03) $ 0.62 $ 1.06
=========== =========== ===========
Weighted average common shares
outstanding--basic.................... 14,420,000 15,899,000 16,784,000
=========== =========== ===========
Net (loss) income per share--diluted... $ (0.03) $ 0.62 $ 1.05
=========== =========== ===========
Weighted average common shares
outstanding--diluted.................. 14,420,000 15,917,000 16,913,000
=========== =========== ===========

See accompanying notes.

KEYSTONE AUTOMOTIVE INDUSTRIES, INC.

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(in thousands, except per share and share amounts)

Accumulated
Common Stock Additional Other
-------------------- Paid-in Retained Comprehensive
Shares Amount Warrants Capital Earnings Loss Total
---------- -------- -------- ---------- -------- ------------- --------

Balance at March 27,
1998................... 14,642,000 $ 57,196 $ -- $ 724 $39,308 $ -- $ 97,228
Net income.............. -- -- -- -- 17,765 -- 17,765
Defined benefit plan
funding adjustments net
of taxes of $363....... -- -- -- -- -- (527) (527)
--------
Comprehensive income.... -- -- -- -- -- -- 17,238
Issuance of stock in
connection with
acquisition of
Collision Parts
Distributor Co. at
$12.19 per Share....... 150,000 1,828 -- -- -- -- 1,828
Issuance of stock in
connection with
acquisition of Republic
Automotive at $21.69
per share.............. 2,907,000 63,063 -- -- -- -- 63,063
Stock options
exercised.............. 168,000 2,188 -- -- -- -- 2,188
Tax benefit of stock
options exercised -- -- -- 499 -- -- 499
Repurchase of common
stock.................. (1,009,000) (18,839) -- -- -- -- (18,839)
---------- -------- ----- ------ ------- ----- --------
Balance at March 26,
1999................... 16,858,000 105,436 -- 1,223 57,073 (527) 163,205
Net income.............. -- -- -- -- 9,809 -- 9,809
Defined benefit plan
funding adjustments net
of taxes of $363....... -- -- -- -- -- 527 527
--------
Comprehensive income.... -- -- -- -- -- -- 10,336
Issuance of warrants.... -- -- 236 -- -- -- 236
Stock option exercised.. 11,000 103 -- -- -- -- 103
Tax benefit of stock
options exercised...... -- -- -- 37 -- -- 37
Repurchases of common
stock.................. (1,977,000) (23,722) -- -- -- -- (23,722)
---------- -------- ----- ------ ------- ----- --------
Balance at March 31,
2000................... 14,892,000 81,817 236 1,260 66,882 -- 150,195
Net loss................ -- -- -- -- (477) -- (477)
Defined benefit plan
funding adjustments net
of taxes of $341....... -- -- -- -- -- (541) (541)
--------
Comprehensive loss...... -- -- -- -- -- -- (1,018)
Repurchase of common
stock.................. (533,000) (3,236) -- -- -- -- (3,236)
---------- -------- ----- ------ ------- ----- --------
Balance at March 30,
2001................... 14,359,000 $ 78,581 $ 236 $1,260 $66,405 $(541) $145,941
========== ======== ===== ====== ======= ===== ========

See accompanying notes.

KEYSTONE AUTOMOTIVE INDUSTRIES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)

Year ended
------------------------------
March 30, March 31, March 26,
2001 2000 1999
--------- --------- ---------

Operating activities
Net (loss) income............................. $ (477) $ 9,809 $ 17,765
Adjustments to reconcile net (loss) income to
net cash provided by operating activities:
Depreciation and amortization............... 5,249 4,607 4,318
Amortization of goodwill and other
intangibles................................ 2,296 2,649 2,050
Deferred taxes.............................. (2,020) (3,462) 679
Loss on impairment/closures................. 7,104 3,881 --
Provision for losses on uncollectible
accounts................................... (116) 127 601
Provision for losses on inventory........... (172) 19 251
Loss on sales of assets..................... 142 5 27
Changes in operating assets and liabilities:
Accounts receivable....................... (1,940) 3,701 (2,305)
Inventories............................... (1,776) (5,429) (1,151)
Prepaid expenses and other current
assets................................... 981 433 (1,949)
Accounts payable.......................... (623) (2,236) 521
Accrued salaries, wages and related
benefits................................. 17 3,314 (2,286)
Other accrued liabilities................. 515 (3,110) (532)
Other, net................................ 1,011 3,115 624
------- -------- --------
Net cash provided by operating
activities.............................. 10,191 17,423 18,613
Investing activities
Proceeds from sales of assets................. 157 232 42,629
Acquisitions of certain service centers, net
of cash received............................. (380) (9,615) (12,517)
Purchases of property, plant and equipment.... (8,895) (8,745) (5,126)
------- -------- --------
Net cash (used in) provided by investing
activities.............................. (9,118) (18,128) 24,986
Financing activities
Borrowings under bank credit facility......... 2,380 12,500 --
Payments under bank credit facility........... -- -- (20,000)
Bankers acceptances........................... -- (2,961) 1,109
Principal payments on long-term debt.......... (96) (115) (1,133)
Purchase of common stock...................... (3,236) (23,722) (18,839)
Proceeds from stock option exercises.......... -- 103 2,189
------- -------- --------
Net cash used in financing activities.... (952) (14,195) (36,674)
------- -------- --------
Net increase (decrease) in cash and cash
equivalents................................... 121 (14,900) 6,925
Cash and cash equivalents at beginning of
year.......................................... 2,884 17,784 10,859
------- -------- --------
Cash and cash equivalents at end of year....... $ 3,005 $ 2,884 $ 17,784
======= ======== ========
Supplemental disclosures:
Interest paid during the year................. $ 1,436 $ 847 $ 242
Income taxes paid during the year............. 2,060 6,607 11,655
Supplemental schedule of non-cash financing and
investing activities:
Acquisition of businesses using debt.......... $ -- $ -- $ 150
Acquisition of businesses using stock......... -- -- 64,891
Minimum pension liability adjustment.......... 541 (527) 527
Issuance of warrants.......................... -- 236 --

See accompanying notes.

KEYSTONE AUTOMOTIVE INDUSTRIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 30, 2001

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation

The accompanying consolidated financial statements include the accounts of
Keystone Automotive Industries, Inc. and its wholly owned subsidiaries.
Significant subsidiaries included in the consolidated financial statements
include North Star Plating Co. ("North Star"), Inteuro Parts Distributors,
Inc. ("Inteuro") and Republic Automotive Parts, Inc. ("Republic") (the
"Company"). All significant intercompany transactions have been eliminated in
consolidation.

Business Information

The principal business of 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, one in Mexico,
and one in Canada.

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 30, 2001 and March 29,
1999 included 52 weeks. The fiscal year ended March 31, 2000 included 53
weeks.

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.

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 2001 and 2000, the Company imported 15% and 20% of its products from
the Far East, respectively.

Fair Values of Financial Instruments

Fair values of cash and cash equivalents, accounts receivable, accounts
payable, bankers' acceptances and other short-term obligations 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.

KEYSTONE AUTOMOTIVE INDUSTRIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Inventories

The Company's inventories consist primarily of automotive after market
collision replacement parts, paint and related items and bumpers. Inventories
are stated at the lower of cost (first-in, first-out method) or market.

Long-Lived Assets

The Company reviews the reasonability of its long-lived assets, including
goodwill, as required by Statement of Financial Accounting Standards (SFAS)
No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-
Lived Assets to be Disposed Of," whenever significant events or changes occur
which might impair the recovery of the recorded costs. The Company records
impairment losses on long-lived assets held and used in operations when
indicators of impairment are present and the undiscounted cash flows estimated
to be generated by those assets are less than their related carrying amounts.
If impairment exists, the amount of such impairment is calculated based upon
discounted cash flows or the market values compared to the recorded costs. In
addition, the Company accounts for its long-lived assets to be disposed of at
the lower of their carrying amounts or fair value less selling and disposal
costs.

During fiscal 2000, the Company recorded an impairment reserve related to
goodwill and covenants not to compete aggregating $3.3 million relating to
certain acquisitions and an impairment reserve of approximately $630,000
relating to tooling acquired in an acquisition.

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

Goodwill and Other Intangibles

Goodwill, representing the excess of the purchase price over the fair values
of the net assets of acquired entities, is amortized over 15 to 30 years using
the straight-line method. Other intangibles are comprised of covenants not to
compete. Covenants not to compete are amortized using the straight-line method
over the terms of the agreements, generally 3-5 years.

Revenue Recognition

The Company recognizes revenue from product sales at the time of delivery or
shipment. The costs related to shipping and handling fees are included in
selling and distribution expenses. 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.

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 (APB) No. 25, "Accounting

KEYSTONE AUTOMOTIVE INDUSTRIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

for Stock Issued to Employees," and related interpretations. Under the
provisions of APB No. 25, compensation expense is measured at the grant date
for the difference between the fair value of the stock and the exercise price.
The Company has not granted stock options at less than the fair value of the
stock at the date of grant.

New Accounting Standards

In June 1998, the Financial Accounting Standards Board (FASB) issued SFAS
No. 133, "Accounting for Derivative Instruments and Hedging Activities," which
establishes accounting and reporting standards for derivative instruments and
hedging activities. It requires that an entity recognize all derivatives in
the statement of financial position and measure those instruments at fair
value. In 1999, the FASB issued SFAS No. 137, "Accounting for Derivative
Instruments and Hedging Activities--Deferral of the Effective Date of FASB
Statement No. 133--an amendment of FASB Statement No. 133," which defers the
effective date of SFAS No. 133 for one year. The Company must implement SFAS
No. 133 by the first quarter of fiscal year 2002 and has not yet made a final
determination of its impact on the financial statements.

Effective April 1, 2000, the Company adopted Staff Accounting Bulletin (SAB)
No. 101, "Revenue Recognition in Financial Statements," which requires that
entities recognize revenue subject to certain criteria. The adoption of SAB
101 did not have a significant impact on the Company's results of operations.

2. ACQUISITIONS

In June 1998, the Company completed its acquisitions of Republic Automotive
Parts, Inc. ("Republic"). The Company issued approximately 2,907,000 shares of
its common stock in exchange for the outstanding common stock of Republic
(total purchase price of approximately $63.1 million using an average share
price of $21.69). The fair value of the assets acquired approximated $41.9
million, net of approximately $28.8 million of liabilities assumed. The excess
of the purchase price over assets acquired (goodwill) approximated $21.2
million and is being amortized over 30 years. The acquisition of Republic is
being accounted for under the purchase method of accounting. At the time of
the acquisition, Republic was engaged in the distribution of automotive
mechanical hard parts and aftermarket collision replacement parts.

The net assets acquired as part of the Republic transaction, which related
to the Republic mechanical hard parts operations, were recorded as assets held
for sale in the allocation of the opening balance sheet at June 27, 1998. The
assets held for sale were recorded at fair value based upon the final sales
price. The results of operations from June 27, 1998 through the date of sale
of the mechanical hard parts operations were accounted for as an adjustment to
the carrying amount of the assets. The assets held for sale were sold in a
series of transactions during fiscal 1999, which resulted in a gain. The gain
on sales has been accounted for as an adjustment of the original purchase
price. The operating results of the Company from June 27, 1998, excluded any
effects from the mechanical hard parts business.

The unaudited pro forma results of operations for the year ended March 26,
1999, as though Republic had been combined with the Company at the beginning
of fiscal 1998, is as follows (in thousands, except share and per share
amounts):

March 26,
1999
-----------

Net sales....................................................... $ 347,346
Net income...................................................... $ 17,325
Net income per diluted share.................................... $ .98
Weighted average shares outstanding diluted..................... 17,649,000

KEYSTONE AUTOMOTIVE INDUSTRIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

In addition to the Republic acquisition, Keystone acquired six other
companies for approximately $17.8 million cash, $1.8 million in stock and a
note payable of $150,000. These acquisitions were accounted for as purchases,
and accordingly the assets and liabilities of the acquired entities have been
recorded at their estimated fair values at the dates of acquisition. The
excess of purchase price over the estimated fair values of the assets acquired
was approximately $9.9 million and has been recorded as goodwill and is being
amortized over 15 to 20 years. The unaudited proforma results for fiscal 1999,
assuming these other acquisitions had been made at the beginning of fiscal
1998, would not be materially different from the pro forma results presented
above.

3. GOODWILL AND OTHER INTANGIBLES

Amortization expense for goodwill and other intangibles for the years ended
March 30, 2001, March 31, 2000 and March 26, 1999 was $2,296,000, $2,649,000
and $2,050,000, respectively, and is included with depreciation and
amortization expense.

4. FINANCING ARRANGEMENTS

The Company maintains a revolving line of credit with a commercial lender
that provides a $30,000,000 unsecured credit facility that expires, as
amended, in November 2001. Initial advances under the revolving line of credit
are made with interest at the lender's prime rate; however, at the Company's
option, all advances may be converted to LIBOR plus 1.00%. The agreement also
contains an unused line charge of 0.25%. At March 30, 2001, $14,880,000 was
outstanding under the line of credit. The 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 30, 2001.

5. SHAREHOLDERS' EQUITY

In June 1998, as part of the Company's acquisition of Republic, the Company
issued approximately 2,907,000 shares using an average share price of $21.69.

The Company maintains a stock repurchase plan as authorized by the Board of
Directors to purchase shares of its common stock at such times and at such
prices as the President and Chief Financial Officer deemed appropriate.
Repurchased shares are redeemed and treated as authorized but unissued shares.
Since the inception of the plan, the Company has repurchased 3.5 million
shares for approximately $45.8 million, an average of $13.01 per share. At
March 30, 2001, shares with an aggregate value of $4,135,000 remained as
authorized to be repurchased under the plan. During the years ended March 30,
2001 and March 31, 2000, the Company had repurchased approximately 533,000
shares and 1,977,000 shares, respectively, of its common stock at an average
cost of $6.07 and $11.99 per share, respectively.

In March 1999, the Company issued 150,000 shares of unregistered stock using
an average share price of $12.19 to acquire Collision Parts Distributors Co.

In February 2000, the Company issued 100,000 warrants to purchase the
Company's stock at an exercise price of $6.50 to a vendor. The warrants are
exercisable starting in February 2001 through 2005, or through the date of
dissolution on the agreement. Using the intrinsic value method, the Company
recorded the warrants in equity at $236,000 and will amortize the expense over
the period services are received from the vendor.

The Company may pay dividends at the discretion of the Board of Directors.
The Company has never paid dividends.

KEYSTONE AUTOMOTIVE INDUSTRIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

6. EARNINGS PER SHARE

The Company calculates earnings per share as required by SFAS No. 128,
"Earnings Per Share." Under SFAS No. 128 basic earnings per share excludes any
dilutive effects of options, warrants and convertible securities. The
following table sets forth the computation of basic and diluted earnings per
share:

Year ended
-----------------------------
March 30, March 31, March 26,
2001 2000 1999
--------- --------- ---------
(in thousands, except share
and
per share amounts)

Numerator:
Net (loss) income........................... $ (477) $ 9,809 $17,765
------- ------- -------
Denominator:
Denominator for basic (loss) earnings per
share--weighted average Shares............. 14,420 15,899 16,784
------- ------- -------
Effect of dilutive securities:
Employee stock options...................... -- 18 129
Denominator for dilutive (loss) earnings per
share--adjusted weighted average shares and
assumed conversions........................ 14,420 15,917 16,913
------- ------- -------
Basic (loss) earnings per share............... $ (0.03) $ 0.62 $ 1.06
======= ======= =======
Diluted (loss) earnings per share............. $ (0.03) $ 0.62 $ 1.05
======= ======= =======

Warrants to purchase 100,000 shares with an exercise price greater than the
average market price of common stock were outstanding at March 30, 2001. These
warrants, along with the employees stock options, were excluded from the
computation of diluted earnings per share because their effect would be
antidilutive.

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 for related party lease agreements, included in the total rent
expense, amounted to $917,915, $1,373,000 and $1,863,000 for the fiscal years
2001, 2000 and 1999, respectively, exclusive of the Company's obligation for
property taxes and insurance.

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 the financial reporting and tax basis 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.

KEYSTONE AUTOMOTIVE INDUSTRIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Significant components of the Company's deferred tax liabilities and assets
are as follows:

March 30, March 31,
2001 2000
--------- ---------
(in thousands)

Deferred tax assets:
Inventory............................................ $2,025 $2,066
Intangibles.......................................... 2,374 2,542
Excess of tax basis over book basis of property and
equipment........................................... 1,739 --
Accrued expenses..................................... 2,612 2,021
Other, net........................................... 475 196
------ ------
Total deferred tax assets.......................... 9,225 6,825
Valuation allowance................................ (379) --
------ ------
8,846 6,825
Deferred tax liabilities:
Prepaid expenses..................................... (45) (44)
------ ------
Total deferred tax liabilities..................... (45) (44)
------ ------
Net deferred tax assets............................ $8,801 $6,781
====== ======

The Company recorded a valuation allowance related to an asset recorded as a
result of the write-off of its investment in an internet company.

Significant components of the provision for income taxes attributable to
operations under the liability method are as follows:

Year ended
-----------------------------
March 30, March 31, March 26,
2001 2000 1999
--------- --------- ---------
(in thousands)

Current:
Federal...................................... $ 3,011 $ 8,512 $ 7,136
State........................................ 410 1,769 1,984
------- ------- -------
3,421 10,281 9,120
Deferred:
Federal...................................... (1,777) (3,090) 1,792
State........................................ (243) (372) 931
------- ------- -------
(2,020) (3,462) 2,723
------- ------- -------
$ 1,401 $ 6,819 $11,843
======= ======= =======

KEYSTONE AUTOMOTIVE INDUSTRIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

The reconciliation of income taxes at the U.S. federal statutory tax rate to
reported income tax expense is as follows:

Year ended
-----------------------------
March 30, March 31, March 26,
2001 2000 1999
--------- --------- ---------
(in thousands)

Income taxes at statutory tax rate........... $ 457 $5,821 $10,363
State income taxes, net of federal tax
effect...................................... 56 710 1,229
Non-deductible expenses...................... 509 288 251
Valuation allowance.......................... 379 -- --
------ ------ -------
$1,401 $6,819 $11,843
====== ====== =======

9. EMPLOYEE BENEFIT PLANS

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.
Effective in April 1997, the Company suspended the accrual of future benefits.

In June 1998, the Company acquired Republic, including its pension and
postretirement life and health insurance plans ("Health and Life Plans").
Republic's defined benefit plan covers substantially all employees. Benefits
under this plan generally are based upon the employee's years of service and
compensation preceding retirement. The Company's general funding policy is to
contribute amounts deductible for federal income taxes. Under the Health and
Life Plans, the Company contributes toward the cost of health insurance
benefits for certain retired employees. In order to be eligible for
postretirement health insurance coverage, an employee must retire after
attainment of age 55 and completion of 10 years of service, or attainment of
age 50 and completion of 15 years of service. After attainment of age 65, the
employee will not be eligible for coverage under the health insurance plan.
Effective July 1, 2000, the Company terminated its practice of reimbursing
certain retirees for the cost of supplemental Medicare medical insurance
coverage. These retirees had been receiving a maximum benefit of $75 per
month. Termination of this benefit resulted in a settlement gain of $823,000.
In order to be eligible for life insurance benefits, an employee must retire
after attaining age 55 and completing 10 years of service, or attaining age 50
and completing 15 years of service. Eligible retirees will receive a life
insurance benefit of $2,500 for which the Company pays the full cost. The
Health and Life Plans are unfunded and therefore, premiums are paid from the
Company's current operations.

Effective June 30, 1999, the accrual of future benefits under the Republic
defined benefit plan was suspended. The defined benefit plans of the Company
and Republic were merged on December 31, 1999.

KEYSTONE AUTOMOTIVE INDUSTRIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

The net periodic pension cost for all the Company's benefit plans was as
follows:

Pension Benefits Other Benefits
----------------------------- -----------------------------
March 30, March 31, March 26, March 30, March 31, March 26,
2001 2000 1999 2001 2000 1999
--------- --------- --------- --------- --------- ---------
(in thousands)

Service cost............ $ -- $ 67 $ 281 $ 5 $ 5 $11
Interest cost........... 365 485 424 30 87 58
Recognized gains or
(losses)............... 3 (193) 29 -- -- --
Prior service cost
recognized............. -- 130 -- -- -- --
Expected return on
assets................. (279) (284) (500) -- -- --
----- ----- ----- ---- ---- ---
$ 89 $ 205 $ 234 $ 35 $ 92 $69
===== ===== ===== ==== ==== ===

The following is a summary of the status of the funding of the plans:

Pension Benefits Other Benefits
------------------- -------------------
March 30, March 31, March 30, March 31,
2001 2000 2001 2000
--------- --------- --------- ---------
(in thousands)

Change in benefit obligation:
Benefit obligation at beginning of
year............................... $ 4,062 $ 8,140 $1,068 $ 1,107
Service cost........................ -- 67 5 5
Interest cost....................... 365 485 30 87
Plan participants' contributions.... -- -- -- 12
Actuarial losses (gains)............ 633 (87) 95 (49)
Settlement loss (gain).............. -- 671 (823) --
Benefits paid....................... (262) (3,121) (87) (94)
Plan amendments..................... -- (324) -- --
Change in assumptions............... 571 (1,769) -- --
------- ------- ------ -------
Benefit obligation at end of
year............................. $ 5,369 $ 4,062 $ 288 $ 1,068
======= ======= ====== =======
Change in plan assets:
Fair value of plan assets at
beginning of year.................. $ 3,627 $ 6,464 $ -- $ --
Actual return on plan assets........ (191) 284 -- --
Company contributions............... -- -- -- --
Benefits paid....................... (262) (3,121) -- --
------- ------- ------ -------
Fair value of plan assets at end
of year.......................... $ 3,174 $ 3,627 $ -- $ --
======= ======= ====== =======
Funded status:
Funded status of the plan
(underfunded)...................... $(2,195) $ (435) $ (288) $(1,068)
Unrecognized net actuarial (gain)
losses............................. 882 (39) -- (143)
------- ------- ------ -------
Net amount recognized............. $(1,313) $ (474) $ (288) $(1,211)
======= ======= ====== =======
Amounts recognized in the statement of
financial position:
Accrued benefit liability........... $(2,195) $ (474) $ (288) $(1,211)
Accumulated other comprehensive
loss............................... 882 -- -- --
------- ------- ------ -------
Net amount recognized............. $(1,313) $ (474) $ (288) $(1,211)
======= ======= ====== =======

KEYSTONE AUTOMOTIVE INDUSTRIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

In accordance with the provisions of SFAS No. 87, "Employers Accounting for
Pensions," at March 30, 2001 the Company recorded a minimum pension liability
representing the excess of the accumulated benefit obligation over the fair
value of the plan assets. The balance of the liability of $882,000 was
reported in accumulated comprehensive loss, net of applicable deferred income
taxes of $341,000. No minimum pension liability existed at March 31, 2000.

In determining the actuarial present value of projected benefit obligations
at March 30, 2001 and March 31, 2000, a discount rate of 7.25% and 8%,
respectively, was used. There are no future compensation increases due to the
suspension of benefit accruals. The expected long-term annual rate of return
on assets was 8% for the years ended March 30, 2001 and March 31, 2000.

For the Health and Life Plans, the actuarial present value of benefit
obligations at March 30, 2001 and March 31, 2000, assumed a discount rate of
7.25% and 8%, respectively. The assumed healthcare cost trend rate for 2001
and later was 7%. The assumed health care cost trend rate has a significant
effect on the amounts reported. A one-percentage-point change in the assumed
health care cost trend rate would have the following effects:

1-Percentage 1-Percentage
Point Point
Increase Decrease
------------ ------------
(in thousands)

Effect on the total of service cost and interest
cost components in
fiscal 2001..................................... $ 4 $ (3)
Effect on the postretirement benefit obligation
as of March 30, 2001............................ $16 $(14)

The Company maintains a 401(k) plan, as amended, 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 6% of employee contributions. Employee
contributions vest immediately, while employer contributions vest based on
years of service. Employer contributions to the plan were $1,318,000,
$1,074,000 and $1,058,000 for the years ended March 30, 2001, March 31, 2000
and March 26, 1999, respectively.

KEYSTONE AUTOMOTIVE INDUSTRIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

10. STOCK COMPENSATION PLANS

In 1996, the Board of Directors of the Company adopted a Stock Incentive
Plan (the "1996 Plan"). There were 2,200,000 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
Stock Option Plan Shares Exercise Price
----------------- --------- --------------

Outstanding at March 27, 1998......................... 588,250 $13.99
Granted............................................. 390,000 19.30
Exercised........................................... (168,525) 14.76
Expired............................................. (10,250) 9.16
--------- ------
Outstanding at March 26, 1999......................... 799,475 16.36
Granted............................................. 395,000 14.13
Exercised........................................... (11,400) 9.00
Expired/Cancelled................................... (327,575) 19.55
--------- ------
Outstanding at March 31, 2000......................... 855,500 15.75
Granted............................................. 734,000 5.58
Exercised........................................... -- --
Expired/Cancelled................................... (93,675) 13.53
--------- ------
Outstanding at March 30, 2001......................... 1,495,825 $10.24
========= ======

KEYSTONE AUTOMOTIVE INDUSTRIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

The following tabulation summarizes certain information concerning
outstanding and exercisable options at March 26, 1999, March 31, 2000 and
March 30, 2001:

Price Range
----------------------------------
$5.53- $12.00-
$9.00 $20.00 $20.375 $24.13
-------- -------- ------- --------

Outstanding options as of March 26, 1999:
Number outstanding........................ 150,600 436,875 67,000 145,000
Weighted average exercise price........... $ 9.00 $ 15.75 $20.375 $ 24.13
Weighted average remaining contractual
life in years............................ 7.2 7.6 8.4 9.1
Exercisable options:
Number exercisable........................ 75,300 125,744 16,750 --
Weighted average exercise price........... $ 9.00 $ 15.61 $20.375 $ --
Outstanding options as of March 31, 2000:
Number outstanding........................ 121,700 690,300 43,500 --
Weighted average exercise price........... $ 9.00 $ 15.61 $20.375 $ --
Weighted average remaining contractual
life in years............................ 6.2 7.9 7.4 --
Exercisable options:
Number exercisable........................ 96,275 321,675 21,750 --
Weighted average exercise price........... $ 9.00 $ 15.61 $20.375 $ --
Outstanding options as of March 30, 2001:
Number outstanding........................ 824,700 632,625 38,500 --
Weighted average exercise price........... $ 6.06 $ 15.06 $20.375 $ --
Weighted average remaining contractual
life in years............................ 8.2 6.6 6.8 --
Exercisable options:
Number exercisable........................ 116,700 351,625 28,875 --
Weighted average exercise price........... $ 9.00 $ 15.32 $20.375 $ --

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 SFAS No. 123,
"Accounting for Stock-Based Compensation," net (loss) income and (loss)
earnings per share would have been reduced to the pro forma amounts shown
below:

March 30, March 31, March 26,
2001 2000 1999
--------- --------- ---------
(In thousands, except per
share amounts)

Pro forma:
Net (loss) income............................ $(1,710) $8,444 $17,009
Net (loss) income per share:
Basic...................................... $ (.12) $ .53 $ 1.01
Diluted.................................... $ (.12) $ .53 $ 1.01

KEYSTONE AUTOMOTIVE INDUSTRIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

The effects of applying SFAS No. 123 for purposes of determining pro forma
net income and net income per share are not likely to be representative of the
effects on reported net income for future years. 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 30, March 31, March 26,
2001 2000 1999
---------- --------- ---------

Risk free interest rate...................... 4.57%-6.03% 5.24% 5.89%
Expected life in years....................... 4 4 4
Expected volatility.......................... 54.1% 49.6% 31.6%
Expected dividend yield...................... 0.00% 0.00% 0.00%

11. COMMITMENTS AND CONTINGENCIES

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 30,
2001:

Related Total
Party Operating
Leases Other Leases
------- ------- ---------
(in thousands)

2002............................................... $1,095 $12,349 $13,444
2003............................................... 1,109 10,341 11,450
2004............................................... 1,053 8,169 9,222
2005............................................... 873 5,420 6,293
2006............................................... 393 3,644 4,037
Thereafter......................................... -- 8,522 8,522
------ ------- -------
Total minimum rental payments...................... $4,523 $48,445 $52,968
====== ======= =======

Total rent expense amounted to $13,679,000, $12,985,000 and $10,695,000 for
fiscal 2001, 2000 and 1999, 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.

The Company is subject to legal proceedings and claims which arise in the
ordinary course of its business. Although occasional adverse decisions or
settlements may occur, the Company believes that the final disposition of such
matters will not have a material adverse effect on the financial position,
results of operations or cash flow of the Company.

12. NON-RECURRING EXPENSES

During fiscal 2001, the Company recorded approximately $7.1 million of
nonrecurring expenses as compared to $3.9 million in fiscal 2000. In fiscal
2001, these expenses were primarily the result of a write-down

KEYSTONE AUTOMOTIVE INDUSTRIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

of certain computer related expenses of approximately $4,663,000 and the
Company's investment in an Internet business-to-business service provider,
accounted for, using the cost method of accounting, of approximately $981,000,
and approximately $1,460,000 of expenses relating to the closing or
consolidation of various locations. In fiscal 2000, non-recurring expenses
were the result of write-downs of goodwill and covenants not to compete
relating to certain acquisitions and a write-off relating to tooling acquired
in an acquisition.

During fiscal 1999, the Company expensed approximately $1.8 million of non-
recurring expenses. These expenses relate to an approximately $700,000 write-
off of an abandoned computer project, approximately $650,000 related to costs
incurred to consolidate duplicate warehouse facilities and approximately
$450,000 related to severance payments.

13. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)

The following is a summary of the quarterly results of operations for the
years ended March 30, 2001 and March 31, 2000.

Quarter Ended (1)
-----------------------------------------
June 30 September 29 December 29 March 30
------- ------------ ----------- --------
(In thousands, except per share amounts)

2001:
Net Sales...................... $86,612 $82,834 $85,450 $96,949
Gross Profit................... 36,938 34,522 35,969 40,343
Non-recurring expenses......... -- -- -- 7,104 (/2/)
Net Income (Loss).............. 1,466 359 716 (3,018)
Net Income (Loss) Per Share--
Basic......................... 0.10 0.02 0.05 (0.03)
Net Income (Loss) Per Share--
Diluted....................... 0.10 0.09 0.05 (0.03)

Quarter Ended
---------------------------------------
July 2 October 1 December 31 March 31
-------- --------- ----------- --------
(In thousands, except per share
amounts)

2000:
Net Sales........................ $101,381 $92,501 $86,197 $92,387
Gross Profit..................... 44,906 39,283 37,227 39,209
Non-recurring expenses........... -- -- -- 3,881 (/3/)
Net Income (Loss)................ 5,495 3,191 1,337 (214)
Net Income (Loss) Per Share--
Basic........................... 0.33 0.20 0.09 (0.01)
Net Income (Loss) Per Share--
Diluted......................... 0.33 0.20 0.09 (0.01)

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.
--------
(1) Fiscal 2001 contained 52 weeks and fiscal 2000 contained 53 weeks. The
extra week in fiscal 2000 was included in the quarter ended July 2, 2000.
(2) Write-down of certain computer related expenses and the Company's
investment in an Internet business-to-business service provider and
reserves relating to closing or consolidation of various locations.
(3) Impairment reserve expense related to goodwill, covenant not to compete
and tooling.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

None.

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The following table sets forth information regarding the directors and
executive officers of the Company.

Years
Employed
Name Age Position by Company
---- --- -------- ----------

Ronald G. Foster................. 59 Chairman of the Board --

Charles J. Hogarty............... 60 President, Chief Executive 40
Officer and Director

John M. Palumbo.................. 45 Vice President, Treasurer, 5
and Chief Financial
Officer

D. Currey Hall................... 35 Vice President(1) 12(2)

Carl F. Hartman.................. 47 Vice President(1) 21(3)

Christopher Northup.............. 41 Vice President(1) 18

Kim D. Wood...................... 45 Vice President(1) 19(4)

James C. Lockwood................ 63 Vice President--General 4
Counsel and Secretary

A. Jayson Adair(5)............... 31 Director --

Ronald G. Brown.................. 64 Director --

Timothy C. McQuay(5)(6).......... 49 Director --

Al A. Ronco(5)................... 65 Director --

George E. Seebart(5)(6).......... 72 Director --

Keith M. Thompson(6)............. 60 Director --

--------
(1) Operating officers are listed alphabetically.

(2) Includes years of service at Fenders & More, Inc.

(3) Includes years of service at Midwest Bumper Company.

(4) Includes years of service at North Star Plating Company.

(5) Member of the Audit Committee.

(6) Member of the Compensation Committee.

RONALD G. FOSTER was elected a director of the Company in August 2000 and
was elected as Chairman of the Board of Directors in August 2000. Mr. Foster
has been a consultant since he left the automotive division of Tenneco, Inc.
in October 1993, specializing in acquisitions, joint ventures, turnaround
situations and quality systems such as QS9000. For the prior 25 years, he had
held various positions within the automotive division, most recently as the
Senior Vice President of Tenneco Automotive and General Manager of Monroe Auto
Equipment Company, the world's largest manufacturer of ride control systems.

CHARLES J. HOGARTY has served as the President, Chief Operating Officer and
a director of the Company since 1987 and was appointed the Chief Executive
Officer of the Company in May 1997. From his joining the Company in 1960 until
1987, Mr. Hogarty held various positions, including salesman, sales manager,

general manager and regional manager. Mr. Hogarty served as a director of the
Aftermarket Body Parts Association from 1984 to 1993, President in 1989 and
Chairman in 1990.

JOHN M. PALUMBO joined the Company as Vice President and Treasurer in March
1996 and was appointed Chief Financial Officer in May 1997. From 1988 until he
joined the Company in 1996, Mr. Palumbo served as Chief Financial Officer,
Treasurer and Corporate Secretary of American United Global, Inc., a public
company engaged in the manufacture of certain automotive parts.

D. CURREY HALL was elected a Vice President of the Company in August 2000.
Mr. Hall was a Vice President of Fenders & More, Inc. from May 1989 to July
1997, when he became President of that company, a position which he occupies
at the present time. Mr. Hall has been a member of the Board of Directors of
the Aftermarket Body Parts Association since 1997.

CARL F. HARTMAN was elected a Vice President of the Company in May 2001. Mr.
Hartman was employed by Midwest Bumper Company and related companies from
September 1979 until it was acquired by the Company in March 1999. He occupied
various positions with those companies, beginning as a sales manager and
immediately prior to the acquisition he was Vice President and General
Manager. Mr. Hartman served on the Board of Directors of the Aftermarket Body
Parts Association for 17 years and the Bumper Recyclers Association of North
America for 3 years. He was a member of the CAPA Technical Committee for 9
years and is currently an advisor to that Committee.

CHRISTOPHER NORTHUP has served as a Vice President of the Company since
October 1996. From 1987 until October 1996, Mr. Northup served as the National
Marketing Director. From his joining the Company in 1983 until 1987, Mr.
Northup held the position of Publications Manager.

KIM D. WOOD was elected President and Chief Operating Officer of North Star
upon completion of the North Star Merger in March 1997 and was elected a Vice
President of the Company in May 1997. Mr. Wood served as Vice President of
North Star from 1982 until the completion of the North Star Merger. Mr. Wood
is a director of the Certified Automotive Parts Association. From 1989 until
1999, a member of the Board of Directors of the Aftermarket Body Parts
Association, serving as its Chairman from 1993 through 1995.

JAMES C. LOCKWOOD joined the Company in April 1997 and was appointed Vice
President--General Counsel and Secretary in May 1997. From July 1985 until he
joined the Company in April 1997, Mr. Lockwood was a member of the law firm of
Troy & Gould Professional Corporation.

A. JAYSON ADAIR has been the President of Copart, Inc., a publicly-held
company ("Copart"), since November 1996 and has served as a director of that
corporation since September 1992. From April 1995 until October 1996, Mr.
Adair served as Copart's Executive Vice President and from August 1990 until
April 1995, he served as its Vice President of Sales and Operations. From June
1988 to August 1990, Mr. Adair served as Copart's Manager of Operations.

RONALD G. BROWN was elected a director of the Company upon completion of the
merger of North Star Plating Company and the Company (the "North Star Merger")
pursuant to the terms of the Merger Agreement and was elected as Chairman of
the Board of Directors in May 1997. Mr. Brown served as Chairman of the Board
until he resigned in August 2000. Mr. Brown served as President of North Star
from its founding in 1968 until the North Star Merger and he is currently the
Vice-President--Manufacturing of North Star. Mr. Brown has served as a member
of the Board of Directors and Vice President of the Bumper Recycling
Association of North America.

TIMOTHY C. MCQUAY was appointed a director of the Company upon the
completion of its initial public offering in June 1996. Mr. McQuay joined A.G.
Edwards & Sons, Inc. as a Senior member of its Investment Banking Department
in July 1997, where he is currently a Managing Director. From October 1994 to
July 1997, he was Managing Director--Corporate Finance of Crowell, Weedon &
Co. From May 1993 to October 1994,

Mr. McQuay was Vice President, Corporate Development with Kerr Group, Inc., a
NYSE-listed plastics manufacturing company. From May 1990 to May 1993, Mr.
McQuay was Managing Director--Merchant Banking with Union Bank. Mr. McQuay is
a director of Meade Instruments Corp., a publicly-held company.

AL A. RONCO served as the Executive Vice President of the Company from 1987
until he retired in August 1998. He also served as Secretary of the Company
from 1987 until he resigned that position in May 1997. From his joining the
Company in 1959 until 1987, Mr. Ronco held various positions, including
salesman, production manager, general manager and regional manager. Mr. Ronco
has been a director of the Company since 1987.

GEORGE E. SEEBART was appointed a director of the Company upon the
completion of its initial public offering in June 1996. From 1964 until his
retirement in 1993, Mr. Seebart was employed in various executive positions
with Farmers Group, Inc., including as Senior Vice President, Field Operations
and Vice President, Sales and Marketing. Additionally, from 1987 to 1993, Mr.
Seebart was President of Mid-Century Insurance Company, a subsidiary of
Farmers Group, Inc.

KEITH M. THOMPSON was the President and Chief Executive Officer of Republic
Automotive Parts, Inc. ("Republic") from 1986 until he resigned on November
30, 1998. Republic was acquired by the Company in June 1998. Mr. Thompson was
elected a director of the Company in March 1999.

Pursuant to the North Star Merger, certain shareholders of the Company,
including Charles J. Hogarty, Al A. Ronco and John M. Palumbo, agreed to vote
all shares held by them to maintain Ronald G. Brown as a director of the
Company.

All directors are elected annually and serve until the next annual meeting
of shareholders or until their successors have been elected and qualified. All
officers are appointed by and serve at the discretion of the Board of
Directors, subject to employment agreements, where applicable. There are no
family relationships between any directors or officers of the Company.

The Board of Directors has established an Audit Committee, whose members are
currently Messrs. McQuay, Ronco and Seebart and a Compensation Committee whose
members are Messrs. McQuay, Seebart and Thompson.

ITEM 11. EXECUTIVE COMPENSATION

The information required by this Item will be contained in the Company's
definitive Proxy Statement for its 2001 Annual Meeting of Stockholders under
the captions "Election of Directors" and "Executive Compensation," and is
incorporated herein by reference.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The information required by this Item will be contained in the Company's
definitive Proxy Statement for its 2001 Annual Meeting of Stockholders under
the caption "Security Ownership," and is incorporated herein by reference.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The information required by this Item will be contained in the Company's
definitive Proxy Statement for its 2001 Annual Meeting of Stockholders under
the caption "Certain Transactions," and is incorporated herein by reference.

PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE AND REPORTS ON FORM 8-K

(a)(1) Financial Statements:

See the Index to Item 8 above.

(a)(2) Financial Statement Schedule:

See (d) below.

(a)(3) Exhibits:

The following exhibits are filed herewith or incorporated by reference
herein:

Exhibit No. Description
----------- -----------

3.1(2) Amended and Restated Bylaws of the Registrant. [3.4]*

3.1.1(4) Amendment to Amended and Restated Bylaws of the Registrant.
[3.1.1]*

3.1.2(9) Amendment to Amended and Restated Bylaws of the Registrant.
[3.1.2]*

3.2(2) Restated Articles of Incorporation of the Registrant. [3.5]*

3.2.1(8) Amendment to Restated Articles of Incorporation of Registrant.
[3.2.1]*

3.2.2(9) Amendment to Restated Articles of Incorporation of Registrant.
[3.2.2]*

3.2.3(11) Certificate of Determination of Series A Junior Participating
Preferred Stock. [4.2(A)]*

4.1(2) Form of stock certificate. [4.1]*

4.2(11) Rights Agreement dated as of February 10, 2000 [4.2]*

4.3(14) Warrant to Purchase 100,000 shares of Common Stock dated
February 21, 2000. [4.3]*

10.1(1)(A) Employment Agreement dated June 20, 1996, between the Registrant
and Charles J. Hogarty.[10.2]*

10.2(3)(A) Employment Agreement between North Star and Ronald G. Brown.
[10.5]*

10.3(3)(A) Employment Agreement between North Star and Kim D. Wood. [10.6]*

10.4(14)(A) Employment Agreement between the Registrant and John M. Palumbo
dated December 1, 1999. [10.4]*

10.5(1)(A) Indemnification Agreement dated June 20, 1996 between the
Registrant and Charles J. Hogarty. [10.6]*

10.6(1)(A) Indemnification Agreement dated June 20, 1996, between the
Registrant and John M. Palumbo. [10.9]*

10.7(3)(A) Indemnification Agreement between the Registrant and Ronald G.
Brown. [10.12]*

10.8(3)(A) Indemnification Agreement between the Registrant and Kim D.
Wood. [10.13]*s

10.9(1)(A) Keystone Automotive Industries, Inc. 1996 Stock Incentive Plan,
together with forms of incentive stock option, non-qualified
stock option and restricted stock agreements. [10.10]*

10.10(7)(A) Amendment to Registrant's 1996 Stock Incentive Plan

10.11(12)(A) Amendment to Registrant's 1996 Stock Incentive Plan

Exhibit No. Description
----------- -----------

10.12(1) The Registrant's Employee Defined Benefit Pension Plan, as
amended. [10.11]*

10.13(1) Lease Agreement, dated January 5, 1995, between V-JAC Properties,
Ltd. and the Registrant. [10.14]*

10.14(1) Lease Agreement, dated January 5, 1995, between V-JAC Properties,
Ltd. and the Registrant. [10.18]*

10.15(3) Voting Agreement dated December 6, 1996, among the Registrant,
North Star Plating Company, Virgil K. Benton, II, Charles J.
Hogarty, Al A. Ronco, Robert L. Blanton and John M. Palumbo.
[10.37]*

10.16(3) Credit Agreement dated March 25, 1997 between the Registrant and
Mellon Bank, N.A. [10.38]*

10.17(7) Amendment No. 1 to Credit Agreement between the Registrant and
Mellon Bank, N.A.

10.18(7) Amendment No. 2 to Credit Agreement between the Registrant and
Mellon Bank, N.A.

10.19(9) Amendment No. 3 to Credit Agreement between the Registrant and
Mellon Bank, N.A. [10.25]*

10.20(9) Amendment No. 4 to Credit Agreement between the Registrant and
Mellon Bank, N.A. [10.26]*

10.21(10) Amendment No. 5 to Credit Agreement between the Registrant and
Mellon Bank, N.A. [a]*

10.22(13) Amendment No. 6 to Credit Agreement between the Registrant and
Mellon Bank, N.A. [10.27]*

10.23(13) Amendment No. 7 to Credit Agreement between the Registrant and
Mellon Bank, N.A. [10.28]*

10.24(4) Lease Agreement, dated January 1, 1995, between North Star and
the spouses of Ronald G. Brown and Kim D. Wood. [10.41]*

10.25(4) Lease Agreement, dated January 1, 1995, between North Star and
the spouse of Ronald G. Brown and a third party. [10.42]*

10.26(4) Lease Agreement, dated January 1, 1995, between North Star and a
partnership owned by Kim D. Wood and an employee of North Star.
[10.43]*

10.27(4) Lease Agreement, dated May 20, 1996, between North Star and a
partnership owned by the spouses of Ronald G. Brown and Kim Wood
and the Brown Family Limited Partnership. [10.44]*

10.28(14)(A) Key Employee Salary Continuation Agreement between Registrant and
James C. Lockwood dated April 11, 2000. [10.26]*

21.1(15) Subsidiaries.

23.1(15) Consent of Ernst & Young LLP, independent auditors of Registrant

--------
* Indicates the exhibit number of the document in the original filing.

(1) Filed as an exhibit to the Registration Statement on Form S-1 filed with
the Securities and Exchange Commission on April 18, 1996 (File No. 333-
3994).

(2) Filed as an exhibit to Amendment No. 2 to the Registration Statement on
Form S-1 filed with the Securities and Exchange Commission on June 17,
1996.

(3) Filed as an exhibit to the Registration Statement on Form S-4 filed with
the Securities and Exchange Commission on December 23, 1996 (File No.
333-18663).

(4) Filed as an exhibit to the Registration Statement on Form S-1 filed with
the Securities and Exchange Commission on June 6, 1997 (File No. 333-
28709).

(7) Filed as an exhibit to Registrant's Registration Statement on Form S-4
filed with the Securities and Exchange Commission on May 18, 1998 (File
No. 333-52969)

(8) Filed as an exhibit to Registrant's Form 10-K filed with the Securities
and Exchange Commission on June 24, 1998.

(9) Filed as an exhibit to Registrant's Form 10-K filed with the Securities
and Exchange Commission on June 24, 1999.

(10) Filed as an exhibit to Registrant's Form 10-Q filed with the Securities
and Exchange Commission on February 14, 2000.

(11) Filed as an exhibit to Registrant's Form 8-K filed with the Securities
and Exchange Commission on February 23, 2000.

(12) As described in Registrant's Proxy Statement filed with the Securities
and Exchange Commission on July 19, 2000.

(13) Filed as an exhibit to Registrant's Form 10-Q filed with the Securities
and Exchange Commission on November 13, 2000.
(14) Filed as an exhibit to Registrant's Form 10-K filed with the Securities
and Exchange Commission on June 26, 2000.

(15) Filed herewith.

(A) A management contract or compensatory plan or arrangement as defined in
Item 601 of Regulation S-K.

(b) Reports on Form 8-K:

On February 23, 2001, the Company filed a Current Report on Form 8-K with
the Securities and Exchange Commission with respect to Item 5. Other Events.

See (a)(3) above.

(d) Financial Statement Schedules:

Schedule II--Valuation and Qualifying Accounts

All other schedules are omitted because they are not applicable or the
required information is shown in the Registrant's financial statements or the
related notes thereto.

KEYSTONE AUTOMOTIVE INDUSTRIES

SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
(in thousands)

Additions
---------------------
Balance at Charged to Charged to Balance at
Beginning Costs and Other End of
Description of Year Expenses Accounts Deductions Year
----------- ---------- ---------- ---------- ---------- ----------

Year ended March 26,
1999
Allowance for
uncollectible
accounts............. $ 593 $601 $ 249 $ 481 $ 962
Year ended March 31,
2000
Allowance for
uncollectible
accounts............. $ 962 $923 $ -- $ 738 $1,145
Year ended March 30,
2001
Allowance for
uncollectible
accounts............. $1,145 $735 $ -- $ 851 $1,029
--------
(1) Uncollectible accounts written off, net of recoveries.

Year ended March 26,
1999
Allowance for slow-
moving inventory..... $1,190 $251 $ 156 $ 75 $1,522
Year ended March 31,
2000
Allowance for slow-
moving inventory..... $1,522 $408 $ -- $ 290 $1,640
Year ended March 30,
2001
Allowance for slow-
moving inventory..... $1,640 $849 $ -- $1,021 $1,468

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Annual Report to be
signed on its behalf by the undersigned, thereunto duly authorized.

KEYSTONE AUTOMOTIVE INDUSTRIES, INC.

/s/ Charles J. Hogarty
By: _________________________________
Charles J. Hogarty
President

Dated: June 27, 2001

Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, this Annual Report has been signed by the following
persons on behalf of the Registrant and in the capacities and on the dates
indicated.

Signature Title Date
--------- ----- ----

/s/ Charles J. Hogarty President, Chief Executive June 27, 2001
______________________________________ Officer and Director
Charles J. Hogarty

/s/ John M. Palumbo Vice President and June 27, 2001
______________________________________ Treasurer (Principal
John M. Palumbo Financial and Accounting
Officer)

Director June , 2001
______________________________________
A. Jayson Adair

/s/ Ronald G. Brown Director June 27, 2001
______________________________________
Ronald G. Brown

/s/ Timothy C. McQuay Director June 27, 2001
______________________________________
Timothy C. McQuay

/s/ Al A. Ronco Director June 27, 2001
______________________________________
Al A. Ronco

/s/ George E. Seebart Director June 27, 2001
______________________________________
George E. Seebart

/s/ Keith M. Thompson Director June 27, 2001
______________________________________
Keith M. Thompson

/s/ Timothy C. McQuay Director June 27, 2001
______________________________________
Timothy C. McQuay