##### Table of Contents



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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549



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FORM 10-Q



(Mark One)



xQuarterly Report Pursuant to Section 13 or 15 (d) of the Securities Exchange Act of 1934.



For the quarterly period ended: December 27, 2002



or



 ̈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 of incorporation or organization) |  | (I.R.S. Employer Identification Number)



700
East Bonita Avenue, Pomona, CA 91767

(Address of principal executive offices) (Zip Code)



(909) 624-8041

(Registrants telephone number including area code)



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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 ̈.



The number of shares outstanding of the registrants Common Stock, no par value, at December 27, 2002 was 14,654,920 shares.



This Form 10-Q contains 20 pages.



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KEYSTONE AUTOMOTIVE INDUSTRIES, INC.



INDEX



|               |  |                                                                                       |  |                                                                                                                                                                           |  | Page Number
|-------------- |  | ------------------------------------------------------------------------------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | -----------
|PART I.        |  |                                                                                       |  | FINANCIAL INFORMATION                                                                                                                                                     |  |            
|Item 1.        |  | Financial Statements                                                                  |  |                                                                                                                                                                          
|               |  | Condensed Consolidated Balance Sheets                                                 |  | 3                                                                                                                                                                        
|               |  |                                                                                       |  | December 27, 2002 (unaudited) and March 29, 2002                                                                                                                          |  |            
|               |  | Condensed Consolidated Statements of Operations                                       |  | 4                                                                                                                                                                        
|               |  |                                                                                       |  | Thirteen weeks (unaudited) and thirty-nine weeks (unaudited) ended December 27, 2002 Thirteen weeks (unaudited) and thirty-nine weeks (unaudited) ended December 28, 2001 |  |            
|               |  | Condensed Consolidated Statements of Cash Flows                                       |  | 5                                                                                                                                                                        
|               |  |                                                                                       |  | Thirty-nine weeks (unaudited) ended December 27, 2002 and thirty-nine weeks (unaudited) ended December 28,
2001                                                           |  |            
|               |  | Notes to Condensed Consolidated Financial Statements (unaudited)                      |  | 6                                                                                                                                                                        
|Item 2.        |  | Managements Discussion and Analysis of Financial Condition and Results of Operations |  | 8                                                                                                                                                                        
|Item 3.        |  | Quantitative and Qualitative Disclosure About Market Risks                            |  | 13                                                                                                                                                                       
|Item 4.        |  | Controls and Procedures                                                               |  | 13                                                                                                                                                                       
|PART II        |  |                                                                                       |  | OTHER INFORMATION                                                                                                                                                         |  |            
|Item 1.        |  | Legal Proceedings                                                                     |  | 14                                                                                                                                                                       
|Item 2.        |  | Changes in Securities and Use of Proceeds                                             |  | 14                                                                                                                                                                       
|Item 3.        |  | Defaults upon Senior Securities                                                       |  | 14                                                                                                                                                                       
|Item 4.        |  | Submission of Matters to a Vote of Security Holders                                   |  | 14                                                                                                                                                                       
|Item 5.        |  | Other Information                                                                     |  | 14                                                                                                                                                                       
|Item 6.        |  | Exhibits and Reports on Form 8-K                                                      |  | 16                                                                                                                                                                       
|Signatures     |  | 18                                                                                   
|Certifications |  | 19                                                                                   





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Keystone Automotive Industries, Inc.

Condensed Consolidated Balance Sheets

(In thousands, except share amounts)



|                                                                                                       |  | December 27, 2002 |         |   | March 29, 2002 |  
|------------------------------------------------------------------------------------------------------ |  | ----------------- | ------- | - | -------------- | -
|ASSETS                                                                                                 |  | (Unaudited)       |         |   | (Note)         |  
|Current Assets:                                                                                        |  |                   |         |   |                |  
|Cash and cash equivalents                                                                              |  | $                 | 2,529   |   |                | $
|Accounts receivable, net of allowance of 1,596 at December 2002 and $1,046 at March
2002               |  |                   | 36,585  |   |                |  
|Inventories, primarily finished goods                                                                  |  |                   | 98,822  |   |                |  
|Other current assets                                                                                   |  |                   | 6,615   |   |                |  
|                                                                                                       |  |                   |         |   |                |  
|Total current assets                                                                                   |  |                   | 144,551 |   |                |  
|Plant, property and equipment, net                                                                     |  |                   | 22,868  |   |                |  
|Goodwill                                                                                               |  |                   | 2,255   |   |                |  
|Other intangibles, net of accumulated amortization of $2,970 at December 2002 and
$2,755 at March 2002 |  |                   | 1,038   |   |                |  
|Other assets                                                                                           |  |                   | 10,603  |   |                |  
|                                                                                                       |  |                   |         |   |                |  
|Total assets                                                                                           |  | $                 | 181,315 |   |                | $
|                                                                                                       |  |                   |         |   |                |  
|LIABILITIES AND SHAREHOLDERS
EQUITY                                                                   |  |                   |         |   |                |  
|Current Liabilities:                                                                                   |  |                   |         |   |                |  
|Credit facility                                                                                        |  | $                 | 13,450  |   |                | $
|Accounts payable                                                                                       |  |                   | 21,236  |   |                |  
|Accrued liabilities                                                                                    |  |                   | 8,331   |   |                |  
|Current portion of long-term debt                                                                      |  |                   | 22      |   |                |  
|                                                                                                       |  |                   |         |   |                |  
|Total current liabilities                                                                              |  |                   | 43,039  |   |                |  
|Long-term debt, less current portion                                                                   |  |                   |        |   |                |  
|Other long-term liabilities                                                                            |  |                   | 1,528   |   |                |  
|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 14,655,000 at December 2002 and 14,583,000 at March
2002                 |  |                   | 81,013  |   |                |  
|Warrant                                                                                                |  |                   | 236     |   |                |  
|Additional paid-in capital                                                                             |  |                   | 1,864   |   |                |  
|Retained earnings                                                                                      |  |                   | 54,176  |   |                |  
|Accumulated other comprehensive loss                                                                   |  |                   | (541    | ) |                |  
|                                                                                                       |  |                   |         |   |                |  
|Total shareholders equity                                                                             |  |                   | 136,748 |   |                |  
|                                                                                                       |  |                   |         |   |                |  
|Total liabilities and shareholders equity                                                             |  | $                 | 181,315 |   |                | $
|                                                                                                       |  |                   |         |   |                |  



The
accompanying notes are an integral part of these condensed consolidated financial statements.



NOTE:    The balance sheet at March 29, 2002 has been derived from the audited consolidated financial statements at that date but does not include all of the information and
footnotes required by accounting principles generally accepted in the United States for complete financial statements.





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Keystone Automotive Industries, Inc.

Condensed Consolidated Statements of Operations

(In thousands, except share and per share amounts)

(Unaudited)



|                                                                                     |  | Thirteen Weeks Ended December 27, 2002 |            |   | Thirteen Weeks Ended December 28, 2001 |   |            | Thirty-nine Weeks Ended December 27,
2002 |  |   | Thirty-nine Weeks Ended December 28,
2001 |  
|------------------------------------------------------------------------------------ |  | -------------------------------------- | ---------- | - | -------------------------------------- | - | ---------- | ----------------------------------------- |  | - | ----------------------------------------- | -
|                                                                                     |  |                                        |            |   |                                        |   |            |                                           |  |   | (restated)                                |  
|Net sales                                                                            |  | $                                      | 108,548    |   |                                        | $ | 94,149     |                                           |  | $ | 316,409                                   |  
|Cost of sales                                                                        |  |                                        | 61,032     |   |                                        |   | 53,463     |                                           |  |   | 178,541                                   |  
|                                                                                     |  |                                        |            |   |                                        |   |            |                                           |  |   |                                           |  
|Gross profit                                                                         |  |                                        | 47,516     |   |                                        |   | 40,686     |                                           |  |   | 137,868                                   |  
|Operating expenses:                                                                  |  |                                        |            |   |                                        |   |            |                                           |  |   |                                           |  
|Selling and distribution                                                             |  |                                        | 32,117     |   |                                        |   | 27,800     |                                           |  |   | 94,285                                    |  
|General and administrative                                                           |  |                                        | 9,744      |   |                                        |   | 8,454      |                                           |  |   | 28,141                                    |  
|Non-recurring                                                                        |  |                                        |           |   |                                        |   |           |                                           |  |   |                                          |  
|                                                                                     |  |                                        |            |   |                                        |   |            |                                           |  |   |                                           |  
|Operating income                                                                     |  |                                        | 5,655      |   |                                        |   | 4,432      |                                           |  |   | 15,442                                    |  
|Other income                                                                         |  |                                        | 454        |   |                                        |   | 411        |                                           |  |   | 1,280                                     |  
|Interest expense                                                                     |  |                                        | (117       | ) |                                        |   | (117       | )                                         |  |   | (381                                      | )
|                                                                                     |  |                                        |            |   |                                        |   |            |                                           |  |   |                                           |  
|Income before income taxes and cumulative effect of a change in accounting
principle |  |                                        | 5,992      |   |                                        |   | 4,726      |                                           |  |   | 16,341                                    |  
|Income tax provision                                                                 |  |                                        | 2,397      |   |                                        |   | 1,938      |                                           |  |   | 6,536                                     |  
|                                                                                     |  |                                        |            |   |                                        |   |            |                                           |  |   |                                           |  
|Income before cumulative effect of a change in accounting principle                  |  |                                        | 3,595      |   |                                        |   | 2,788      |                                           |  |   | 9,805                                     |  
|Cumulative effect of a change in accounting principle (net of tax of
$4,835)         |  |                                        |           |   |                                        |   |           |                                           |  |   |                                          |  
|                                                                                     |  |                                        |            |   |                                        |   |            |                                           |  |   |                                           |  
|Net income (loss)                                                                    |  | $                                      | 3,595      |   |                                        | $ | 2,788      |                                           |  | $ | 9,805                                     |  
|                                                                                     |  |                                        |            |   |                                        |   |            |                                           |  |   |                                           |  
|Per Common Share:                                                                    |  |                                        |            |   |                                        |   |            |                                           |  |   |                                           |  
|Income before cumulative effect of a change in accounting principle:                 |  |                                        |            |   |                                        |   |            |                                           |  |   |                                           |  
|Basic                                                                                |  | $                                      | 0.25       |   |                                        | $ | 0.19       |                                           |  | $ | 0.67                                      |  
|Diluted                                                                              |  | $                                      | 0.24       |   |                                        | $ | 0.19       |                                           |  | $ | 0.65                                      |  
|Cumulative effect of a change in accounting principle (net of tax):                  |  |                                        |            |   |                                        |   |            |                                           |  |   |                                           |  
|Basic                                                                                |  | $                                      |           |   |                                        | $ |           |                                           |  | $ |                                          |  
|Diluted                                                                              |  | $                                      |           |   |                                        | $ |           |                                           |  | $ |                                          |  
|Net income (loss) per share:                                                         |  |                                        |            |   |                                        |   |            |                                           |  |   |                                           |  
|Basic                                                                                |  | $                                      | 0.25       |   |                                        | $ | 0.19       |                                           |  | $ | 0.67                                      |  
|                                                                                     |  |                                        |            |   |                                        |   |            |                                           |  |   |                                           |  
|Diluted                                                                              |  | $                                      | 0.24       |   |                                        | $ | 0.19       |                                           |  | $ | 0.65                                      |  
|                                                                                     |  |                                        |            |   |                                        |   |            |                                           |  |   |                                           |  
|Weighted average common shares outstanding:                                          |  |                                        |            |   |                                        |   |            |                                           |  |   |                                           |  
|Basic                                                                                |  |                                        | 14,649,000 |   |                                        |   | 14,369,000 |                                           |  |   | 14,623,000                                |  
|                                                                                     |  |                                        |            |   |                                        |   |            |                                           |  |   |                                           |  
|Diluted                                                                              |  |                                        | 14,960,000 |   |                                        |   | 14,795,000 |                                           |  |   | 14,986,000                                |  
|                                                                                     |  |                                        |            |   |                                        |   |            |                                           |  |   |                                           |  



The
accompanying notes are an integral part of these condensed consolidated financial statements.



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Keystone Automotive Industries, Inc.

Condensed Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)



|                                                                                         |  | Thirty-nine Weeks Ended December 27,
2002 |         |   | Thirty-nine Weeks Ended December 28,
2001 |  
|---------------------------------------------------------------------------------------- |  | ----------------------------------------- | ------- | - | ----------------------------------------- | -
|                                                                                         |  |                                           |         |   | (restated)                                |  
|Operating activities:                                                                    |  |                                           |         |   |                                           |  
|Net income (loss)                                                                        |  | $                                         | 9,805   |   |                                           | $
|Adjustments to reconcile net income (loss) to net cash provided by operating
activities: |  |                                           |         |   |                                           |  
|Cumulative effect of a change in accounting principle (net of tax)                       |  |                                           |        |   |                                           |  
|Depreciation and amortization                                                            |  |                                           | 4,925   |   |                                           |  
|Loss on impairment                                                                       |  |                                           |        |   |                                           |  
|Provision for losses on uncollectible accounts                                           |  |                                           | 965     |   |                                           |  
|Provision for write-down of inventories                                                  |  |                                           | 2,383   |   |                                           |  
|Loss (gain) on sale of assets, net                                                       |  |                                           | 5       |   |                                           |  
|Changes in operating assets and liabilities:                                             |  |                                           |         |   |                                           |  
|Accounts receivable                                                                      |  |                                           | (3,002  | ) |                                           |  
|Inventories                                                                              |  |                                           | (15,868 | ) |                                           |  
|Other assets                                                                             |  |                                           | 1,167   |   |                                           |  
|Accounts payable and accrued liabilities                                                 |  |                                           | 4,643   |   |                                           |  
|                                                                                         |  |                                           |         |   |                                           |  
|Net cash provided by operating activities                                                |  |                                           | 5,023   |   |                                           |  
|Investing activities:                                                                    |  |                                           |         |   |                                           |  
|Proceeds from sale of assets                                                             |  |                                           | 170     |   |                                           |  
|Purchases of property, plant and equipment                                               |  |                                           | (7,965  | ) |                                           |  
|Acquisitions of certain service centers, net of cash received                            |  |                                           | (5,532  | ) |                                           |  
|                                                                                         |  |                                           |         |   |                                           |  
|Net cash used in investing activities                                                    |  |                                           | (13,327 | ) |                                           |  
|Financing activities:                                                                    |  |                                           |         |   |                                           |  
|Borrowings (payments) on credit facility, net                                            |  |                                           | 6,618   |   |                                           |  
|Other debt, net                                                                          |  |                                           | (67     | ) |                                           |  
|Net proceeds on option exercise                                                          |  |                                           | 630     |   |                                           |  
|                                                                                         |  |                                           |         |   |                                           |  
|Net cash provided by (used in) financing activities                                      |  |                                           | 7,181   |   |                                           |  
|                                                                                         |  |                                           |         |   |                                           |  
|Net decrease in cash and cash equivalents                                                |  |                                           | (1,123  | ) |                                           |  
|Cash and cash equivalents at beginning of period                                         |  |                                           | 3,652   |   |                                           |  
|                                                                                         |  |                                           |         |   |                                           |  
|Cash and cash equivalents at end of period                                               |  | $                                         | 2,529   |   |                                           | $
|                                                                                         |  |                                           |         |   |                                           |  
|Supplemental disclosures                                                                 |  |                                           |         |  
|Interest paid during the period                                                          |  | $                                         | 373     |   |                                           | $
|                                                                                         |  |                                           |         |   |                                           |  
|Income taxes paid during the period                                                      |  | $                                         | 5,022   |   |                                           | $
|                                                                                         |  |                                           |         |   |                                           |  



The
accompanying notes are an integral part of these condensed consolidated financial statements.



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Keystone Automotive Industries, Inc.



Notes to Condensed Consolidated Financial Statements

(Unaudited)

December 27, 2002



1.    Basis of Presentation



The accompanying unaudited financial statements have been prepared in accordance with accounting principles generally accepted in
the United States for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally
accepted in the United States for complete financial statements. In the opinion of management, all adjustments, consisting only of normal recurring accruals considered necessary for fair presentation, with respect to the interim financial
statements, have been included. The results of operations for the 39 week period ended December 27, 2002 are not necessarily indicative of the results that may be expected for the full year ending March 28, 2003. For further information, refer to
the financial statements and footnotes thereto for the year ended March 29, 2002, included in Keystone Automotive Industries, Inc.s (the Company) Form 10-K filed with the Securities and Exchange Commission on June 27, 2002.



2.    Fiscal Year



The Company uses a 52/53 week fiscal year. The Companys
fiscal year ends on the last friday of March.



3.    Income Taxes



The income tax provision for interim periods is based on an estimated effective annual income tax rate.



4.    New Accounting Standards



Statement of Financial Accounting Standards (SFAS) No. 143, Accounting for Asset Retirement Obligations, addresses financial
accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. This Statement is effective for financial statements issued for fiscal years beginning after June 15,
2002. It is not anticipated that the financial impact of this Statement will have a material effect on the Company.



Effective March 30, 2002, the Company implemented SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived
Assets, which addresses financial accounting and reporting for the Impairment or disposal of long-lived assets. This Statement supersedes SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be
Disposed Of, and the accounting and reporting provisions of Accounting Principle Board Opinion (APB) No. 30, Reporting the Results of Operations-Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and
Infrequently Occurring Events and Transactions, for the disposal of a segment of a business. The provisions of this Statement generally are to be applied prospectively. The implementation of this Statement did not have a material effect on the
Company.



5.    Goodwill and Other
Intangibles



In July 2001, the Financial
Accounting Standards Board (FASB) issued SFAS No. 141, Business Combinations. SFAS No. 141 supersedes APB No. 16 Business Combinations and SFAS No. 38 Accounting for Preacquisition Contingencies of Purchased
Enterprises. SFAS No. 141 requires all business combinations initiated after June 30, 2001 to be accounted for using the purchase method. The Company implemented SFAS No. 141 on March 31, 2001. This statement did not have a material effect on
the Companys consolidated financial position or results of operations.



The Company elected to early adopt the provisions of SFAS No. 142, Goodwill and Other Intangible Assets, which supersedes APB No. 17 Intangible Assets. SFAS No. 142 applies to
goodwill and intangible assets acquired after June 30, 2001, as well as goodwill and intangible assets previously acquired. Under this statement, goodwill as well as certain other intangible assets, determined to have an infinite life, will no
longer be amortized. These assets will be reviewed for impairment on a periodic basis. The Company early adopted SFAS No. 142 effective March 31, 2001. Consequently, all goodwill on the Companys balance sheet from that date forward will no
longer be subject to amortization. Goodwill at December 27, 2002 and March 29, 2002 is net of



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accumulated amortization of
$0. Other intangibles, consisting of covenants not to compete with finite lives, will continue to be amortized over the term of the respective covenant. Pursuant to SFAS No. 142, the Company performed a transitional assessment of impairment of
goodwill and other intangibles by applying a fair-value-based test and determined that the Companys goodwill was impaired. Pursuant to SFAS No. 3, Reporting Accounting Changes in Interim Financial Statements, effective March 31,
2001, the Company recorded the cumulative effect of the change in accounting principle ($28.7 million, net of tax) and accordingly, the financial information for the thirty-nine weeks ended December 28, 2001, which had been previously reported, has
been restated, in thousands, as follows:



|Net income reported                                                 |  | $ | 2,524   |  
|------------------------------------------------------------------- |  | - | ------- | -
|Restatement:                                                        |  |   |         |  
|Cumulative effect of the change in accounting principle, net of tax |  |   | (28,691 | )
|                                                                    |  |   |         |  
|Net loss (restated)                                                 |  | $ | (26,167 | )
|                                                                    |  |   |         |  



Other
Intangibles are comprised of covenants not to compete and are as follows:



|                         |  | December 27, 2002 |        |   | March 29, 2002 |  
|------------------------ |  | ----------------- | ------ | - | -------------- | -
|                         |  | (in thousands)    |       
|Gross carrying amount    |  | $                 | 4,008  |   |                | $
|Accumulated amortization |  |                   | (2,970 | ) |                |  
|                         |  |                   |        |   |                |  
|Other intangibles  net  |  | $                 | 1,038  |   |                | $
|                         |  |                   |        |   |                |  



Aggregate amortization expense for other intangible assets for each of the thirty-nine week periods ended December 27, 2002 and December 28, 2001 was $0.4 million. Other intangible assets will be fully amortized within the next five
years.



6.    Acquisitions



The results of operations for the thirteen
week and thirty-nine week periods ended December 27, 2002 reflect the operations from certain businesses acquired in July 2001 and January, February and April 2002, accounted for using the purchase method of accounting. Other than with respect to
the July 2001 acquisition, no results relating to these acquisitions were included with respect to the thirteen week and thirty-nine week periods of fiscal 2002. The unaudited pro forma results for the thirteen week and thirty-nine week periods of
fiscal 2002, assuming these acquisitions had been made at the beginning of fiscal 2002, would not be materially different from the results presented.



7.    Sales By Product



|                            |  | Thirteen Weeks Ended |       | Thirty-nine Weeks Ended
|--------------------------- |  | -------------------- | ----- | -----------------------
|                            |  | December 27, 2002    |       | December 28, 2001      
|                            |  | (in millions)        |       | (in millions)          
|Automotive body parts       |  | $                    | 55.5  |                        
|Bumpers                     |  |                      | 31.3  |                        
|Paint and related materials |  |                      | 12.9  |                        
|Wheels and related products |  |                      | 8.4   |                        
|Other                       |  |                      | .4    |                        
|                            |  |                      |       |                        
|Net Sales                   |  | $                    | 108.5 |                        
|                            |  |                      |       |                        



SFAS No. 131, Disclosures about Segments of an Enterprise and Related Information, requires companies to report financial and descriptive information about their
reportable operating segments, including segment profit or loss, certain specific revenue and expense items, and segments assets, as well as information about the revenues derived from the companys products and services, the countries in which
the company earns revenues and holds assets, and major customers. This statement also requires companies that have a single reportable segment to disclose information about product and services, information about geographic areas, and information
about major customers. This statement requires the use of the management approach to determine the information to be reported. The management approach is based on the way management organizes the enterprise to assess performance and make operating
decisions regarding the allocation of resources. It is managements opinion that, at this time, the Company has one operating and reporting segment.



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The following
discussions sets forth the required disclosure regarding single segment information:



The Company operates as a single reportable segment as a wholesale distributor for automobile aftermarket collision parts, paint and related supplies and equipment in the United States with net sales
for the thirty-nine weeks ended December 27, 2002 of $316.4 million, including operations outside the United States, which were immaterial. The Company sells its products to more than 25,000 collision repair shops located in the United States,
Vancouver, Canada and Tijuana, Mexico.



The
Companys product offerings, comprised of more than 19,000 stock keeping units, may be divided into four primary categories (i) the Companys core business continues to be automotive body parts which consist primarily of fenders, hoods,
headlight and taillight assemblies, radiators, condensers and grilles, (ii) the Company distributes new and remanufactured plastic bumper covers and steel bumpers manufactured by multiple domestic and foreign manufacturers, (iii) the Company
distributes paint and other materials used in repairing a damaged vehicle primarily to repair shops (iv) the Company distributes wheels and related products.



No single customer accounted for more than 1% of the Companys net sales for the thirty-nine weeks ended December 27, 2002 or
December 28, 2001.



8.    Non-Recurring
Expenses



In September 2001, the enterprise
software provider informed the Company that it was ceasing all development for the software package licensed by the Company. As a result, in the second quarter ended September 28, 2001, the Company determined that it could not proceed with the
Company-wide installation and booked a pre-tax charge of $6.8 million to write off the previously capitalized software development costs. With this charge, the Company has written off its investment in this software package.



9.    Earnings Per Share



Basic net income (loss) per share is computed by dividing net
income (loss) available to common shareholders by the weighted average number of common shares outstanding during the period. Diluted net income (loss) per share includes the dilutive effect of potential stock options exercises, calculated using the
treasury stock method.



|Item 2. |  | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|------- |  | -------------------------------------------------------------------------------------



Except
for the historical information contained herein, certain matters addressed in this Item 2 constitute forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. Such forward-looking statements are subject to a variety of risks and uncertainties that could cause actual results to differ materially from those anticipated by the Companys management. The
Private Securities Litigation Reform Act of 1995 (the Act) provides certain safe harbor provisions for forward-looking statements. All forward-looking statements made in this Quarterly Report on Form 10-Q are made pursuant to
the Act and are subject to the cautionary statements set forth herein and in the Companys Form 10-K for the year ended March 29, 2002, on file with the Securities and Exchange Commission.



Critical Accounting Policies



General.    The Companys
discussion and analysis of its financial condition and results of operations are based upon its consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The
preparation of these financial statements requires the Company to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses and related disclosure of contingent assets and liabilities. On an ongoing
basis, the Company evaluates its estimates, including those related to product returns, bad debts, inventories, intangible assets, income taxes, insurance, pensions and contingencies and litigation. The Company bases its estimates on historical
experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities. Actual results may differ from
these estimates under different assumptions or conditions.



The Company believes the following critical accounting policies affect its more significant judgments and estimates used in the preparation of its consolidated financial statements.







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Inventory.    The Company writes down its inventory for estimated obsolescence or unmarketable inventory equal to the difference between the cost of the inventory and its estimated market value based upon
assumptions about future demand and market conditions. If actual market conditions are less favorable than those projected by management, additional inventory write-downs may be required.



Bad Debt.    The Company maintains allowances for doubtful accounts for estimated
losses resulting from the inability of its customers to make required payments. If the financial condition of the Companys customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may
be required.



Deferred
Taxes.    The Company records a valuation allowance to reduce its deferred tax assets to the amount that is more likely than not to be realized. While the Company has considered future taxable income and ongoing prudent and
feasible tax planning strategies in assessing the need for the valuation allowance, in the event the Company were to determine that it would be able to realize its deferred tax assets in the future in excess of its net recorded amount, an adjustment
to the deferred tax asset would increase income in the period such determination was made. Likewise, should the Company determine that it would not be able to realize all or part of its net deferred tax asset in the future, an adjustment to the
deferred tax asset would be charged to income in the period such determination was made.



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KEYSTONE
AUTOMOTIVE INDUSTRIES, INC.



Results of Operations



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



|                                                                                     |  | Thirteen Weeks Ended December 27, 2002 |   |  | Thirteen Weeks Ended December 28, 2001 |   |  | Thirty-nine Weeks Ended December 27, 2002 |   |  | Thirty-nine Weeks Ended December 28, 2001 |   
|------------------------------------------------------------------------------------ |  | -------------------------------------- | - |  | -------------------------------------- | - |  | ----------------------------------------- | - |  | ----------------------------------------- | --
|                                                                                     |  |                                        |   |  |                                        |   |  |                                           |   |  | (restated)                                |   
|Net sales                                                                            |  | 100.0                                  | % |  | 100.0                                  | % |  | 100.0                                     | % |  | 100.0                                     | % 
|Cost of sales                                                                        |  | 56.2                                   |   |  | 56.8                                   |   |  | 56.4                                      |   |  | 57.2                                      |   
|                                                                                     |  |                                        |   |  |                                        |   |  |                                           |   |  |                                           |   
|Gross profit                                                                         |  | 43.8                                   |   |  | 43.2                                   |   |  | 43.6                                      |   |  | 42.8                                      |   
|Selling and distribution expenses                                                    |  | 29.6                                   |   |  | 29.5                                   |   |  | 29.8                                      |   |  | 30.4                                      |   
|General and administrative expenses                                                  |  | 9.0                                    |   |  | 9.0                                    |   |  | 8.9                                       |   |  | 8.6                                       |   
|Non-recurring expense                                                                |  |                                       |   |  |                                       |   |  |                                          |   |  | 2.5                                       |   
|Other income                                                                         |  | 0.4                                    |   |  | 0.4                                    |   |  | 0.4                                       |   |  | 0.5                                       |   
|Interest expense, net                                                                |  | (0.1                                   | ) |  | (0.1                                   | ) |  | (0.1                                      | ) |  | (0.2                                      | ) 
|                                                                                     |  |                                        |   |  |                                        |   |  |                                           |   |  |                                           |   
|Income before income taxes and cumulative effect of a change in accounting
principle |  | 5.5                                    |   |  | 5.0                                    |   |  | 5.2                                       |   |  | 1.6                                       |   
|Income tax provision                                                                 |  | 2.2                                    |   |  | 2.0                                    |   |  | 2.1                                       |   |  | 0.7                                       |   
|                                                                                     |  |                                        |   |  |                                        |   |  |                                           |   |  |                                           |   
|Net income before cumulative effect of a change in accounting principle              |  | 3.3                                    |   |  | 3.0                                    |   |  | 3.1                                       |   |  | 0.9                                       |   
|                                                                                     |  |                                        |   |  |                                        |   |  |                                           |   |  |                                           |   
|Cumulative effect of a change in accounting principle, net of tax                    |  |                                       |   |  |                                       |   |  |                                          |   |  | (10.4                                     | ) 
|                                                                                     |  |                                        |   |  |                                        |   |  |                                           |   |  |                                           |   
|Net income (loss)                                                                    |  | 3.3                                    | % |  | 3.0                                    |   |  | 3.1                                       | % |  | (9.5                                      | %)
|                                                                                     |  |                                        |   |  |                                        |   |  |                                           |   |  |                                           |   



Thirteen weeks ended
December 27, 2002 compared to thirteen weeks ended December 28, 2001



Net sales were $108.5 million for the quarter ended December 27, 2002 (the 2002 Quarter) compared to $94.1 million for the quarter ended December 28, 2001 (the 2001 Quarter), an increase of $14.4
million or 15.3%. This increase was due primarily to increases in sales of automotive body parts, bumpers and wheels. During the 2002 Quarter, sales of automotive body parts (including fenders, hoods, headlights, radiators, grilles and other crash
parts) increased by $10.1 million (an increase of 22.3%); sales of new and recycled bumpers increased by $4.4 million (an increase of 16.4%); sales of remanufactured wheels and related products increased by $1.6 million (an increase of 23.5%) and
sales of paint and related materials decreased by $1.1 million (a decrease of 7.9%). The increases were attributable primarily to the fact that insurance companies are increasingly specifying aftermarket parts in the repair of damaged vehicles and
the growing acceptance of the Platinum Plus private label line. See Item 5 below.



Gross profit increased in the 2002 Quarter to $47.5 million (43.8% of net sales) from $40.7 million (43.2% of net sales) in the 2001 Quarter, an increase of $6.8 million or 16.8%, primarily as a result
of the increase in net sales. The Companys increase in gross profit as a percentage of net sales in the 2002 Quarter reflects the continued fluctuation in cost of sales, primarily because of factors such as product mix and competition. The
Companys gross profit margin has fluctuated, and may continue to fluctuate, depending on a number of factors, including changes in product mix, competition and currency exchange rates. While the Company has not seen any recent increases in
prices at the manufacturing level, increases in raw material costs to manufacturers would in all likelihood be passed on in the form of higher prices to the Company. Higher prices would impact margins if the Company was not able to pass on the
increases to its customers.



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Selling and
distribution expenses increased to $32.1 million (29.6% of net sales) in the 2002 Quarter from $27.8 million (29.5% of net sales) in the 2001 Quarter, an increase of 15.5%, as a result of increased sales.



General and administrative expenses increased to $9.7 million
(9.0% of net sales) in the 2002 Quarter compared to $8.5 million (9.0% of net sales) in the 2001 Quarter, an increase of 15.3%. The increase in general and administrative expenses was generally the result of increased sales and increases in salaries
and wages (in large part as a result of acquisitions), increased professional fees and increases in costs relating to the implementation of the new enterprise software system.



The Company is experiencing premium increases and higher retentions in connection with the annual renewal of
certain of its insurance policies which may negatively impact expenses in future quarters.



Thirty-nine weeks ended December 27, 2002 compared to thirty-nine weeks ended December 28, 2001



Net sales were $316.4 million for the thirty-nine weeks ended December 27, 2002 (the 2002 Nine Months) compared to $274.4
million for the thirty-nine weeks ended December 28, 2001 (the 2001 Nine Months), an increase of $42.0 million or 15.3%. This increase was made up of increases of $28.7 million in sales of automotive body parts (including fenders, hood,
headlights, radiators, grilles, and other crash parts); $11.0 million in sales of new and recycled bumpers; $6.2 million in sales of remanufactured wheels and related products and a decrease of $2.2 million in sales of paint and related materials,
which changes represent increases of approximately 22.8%, 13.8% and 31.6% and a decrease of 4.9%, respectively, over the comparable period in the prior fiscal year.



Gross profit increased in the 2002 Nine Months to $137.9 million (43.6% of net sales) from $117.4 million
(42.8% of net sales) in the 2001 Nine Months, an increase of $20.5 million or 17.5%, primarily as a result of the increase in net sales. The increase in gross margins during the 2002 Nine Months primarily reflects a change in product mix and
competition. The Companys gross profit margin has fluctuated, and may continue to fluctuate, depending on a number of factors, including changes in product mix, competition and currency exchange rates. While the Company has not seen any recent
increases in prices at the manufacturing level, increases in raw material costs to manufacturers would in all likelihood be passed on in the form of higher prices to the Company. Higher prices would impact margins if the Company was not able to pass
on the increases to its customers.



Selling and
distribution expenses increased to $94.3 million (29.8% of net sales) in the 2002 Nine Months from $83.3 million (30.4% of sales) in the 2001 Nine Months, an increase of 13.1%, primarily as a result of increased sales. The decrease in these expenses
as a percentage of net sales was generally the result of certain fixed costs being spread over increased sales and the fixed nature of certain of these costs.



General and administrative expenses increased to $28.1 million (8.9% of net sales) in the 2002 Nine Months from $23.7 million (8.6% of net
sales) in the 2001 Six Months, an increase of 18.9%. The increase was primarily due to increased sales and the increase in these expenses as a percentage of net sales was primarily the result of increases in salaries and wages (in large part as a
result of acquisitions), increased professional fees and increases in costs relating to the implementation of the new enterprise software system.



During the 2001 Nine Months, the Company recognized $6.8 million (2.5% of net sales) of non-recurring expenses. This recognition reflects
a pre-tax charge that is related to a write-off of its investment in an enterprise-wide software package resulting from the notification from the Companys software provider that it was ceasing further development of the software licensed by
the Company. As a direct result of that recognition, the Company had a reduction of its net income from operations for the 2001 Nine Months to $3.6 million.



In addition, the Company recorded a loss as a cumulative effect of change in accounting principle (net of tax) retroactive to March 31,
2001, which relates to the Companys early adoption of SFAS No. 142 Goodwill and Other Intangible Assets. SFAS No. 142 requires that the Company test its goodwill and indefinite-lived intangibles for impairment. As a result of
the test, completed in the fourth quarter of fiscal 2002, the Company restated its results of operations for the thirty-nine week period ended December 28, 2001 and recorded a non-cash impairment charge of $28.7 million, net of taxes of $4.8
million.



As a result of the above factors, the
Company had net income of $9.8 million for the 2002 Nine Months (3.1% of net sales), as compared to a loss of $26.2 million (9.5% of net sales) in the 2001 Nine Months.



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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 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 use of funds over the past two
years has been for acquisitions, the development and implementation of an enterprise-wide management information system and increased working capital needs. At December 27, 2002, working capital was $101.5 million compared to $95.4 million at March
29, 2002. The increase in working capital is primarily the result of cash generated from operating activities and increased levels of accounts receivable and inventory. The Company financed its working capital requirements, capital expenditures and
the acquisition completed during the first three quarters of fiscal 2003 primarily from borrowings under the Companys line of credit and from cash flows from operations.



During the nine months ended December 27, 2002, the Companys cash and cash equivalents decreased by
$1.1 million. This decrease is the result of a decrease in cash used in investing activities of $13.3 million, primarily as a result of cash used to purchase equipment primarily related to the implementation of the Companys enterprise software
system and cash paid for an acquisition, partially offset by an increase in cash provided by operating activities of $5.0 million and an increase in cash provided by financing activities of $7.2 million. The increase in cash provided by operating
activities resulted primarily from the elimination of $8.3 million of non-cash expenses from the reported net income of $9.8 million and the use of cash to increase inventories and accounts receivable. The most significant non-cash expenses were
depreciation and amortization and an increase in the provision for a write-down of inventories. The increase in inventory for the 2002 Nine Months was primarily as a result of the purchase of certain inventory and related assets from Eagle
Automotive, Inc. in April 2002, a buildup of inventory of products manufactured in Taiwan as a safeguard from a pending West Coast dock workers strike, which was subsequently settled, and a bulk purchase of bumpers for reconditioning. The increase
in cash provided by financing activities resulted primarily from borrowings under the Companys credit facility and to a lesser extent from cash proceeds from the exercise of stock options.



The Company has in place a revolving line of credit with a
commercial lender that provides for a $30.0 million secured credit facility due on February 1, 2005. Advances under the revolving line of credit bear interest at LIBOR plus 1.0%. At December 27, 2002, $13.5 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 in compliance with all such covenants at December 27, 2002,
and at the date of the filing of this Quarterly Report. The $6.6 million increase in borrowings from March 29, 2002 is primarily the result of cash used to complete an acquisition in April 2002 and increases in inventories.



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.



Intangible Assets



Goodwill, which represents the excess of cost over the fair value of net assets acquired, amounted to $2.2 million at December 27, 2002, or approximately 1.2% of total assets or 1.7% of consolidated shareholders equity. In
June 2001, the FASB issued SFAS No. 141, Business Combinations, and SFAS No. 142, Goodwill and Other Intangible Assets. SFAS No. 141 requires business combinations initiated after June 30, 2001 to be accounted for using the
purchase method of accounting, and broadens the criteria for recording intangible assets apart from goodwill. Under SFAS No. 142, goodwill and intangible assets that have indefinite useful lives will no longer be amortized but will be tested at
least annually for impairment. Intangible assets with finite useful lives will continue to be amortized over their useful lives. The goodwill test for impairment consists of a two-step process that begins with an estimation of the fair value of the
reporting unit. The first step of the test is a screen for potential impairment and the second step measures the amount of impairment, if any. SFAS No. 142 requires an entity to complete the first step of the transactional goodwill impairment test
within six months of adopting the Statement. See Note 3 of Notes to Consolidated Financial Statements.



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As a result of
the early adoption of SFAS Nos. 141 and 142 effective March 31, 2001, the Company tested its goodwill for impairment and recorded a charge of $28.7 million, net of tax, retroactive to the first quarter of fiscal 2002, accounted for as the cumulative
effect of a change in accounting principle. The net loss for the nine months ended December 28, 2001 reflects this charge. With SFAS No. 142, effective March 31, 2001, the Company will not continue to amortize goodwill.



Other intangible assets, consisting primarily of covenants not
to compete obtained in acquisitions, which have finite lives, will continue to be amortized over the finite life. As of December 27, 2002, other intangible assets amounted to $1.0 million. Amortization of other intangible assets was approximately
$0.4 million for each of the thirty-nine week periods ended December 27, 2002 and December 28, 2001. Other intangible assets will continue to be evaluated under SFAS No. 142.



New Accounting Standards



SFAS No. 143, Accounting for Asset Retirement Obligations, addresses financial accounting and reporting for obligations
associated with the retirement of tangible long-lived assets and the associated asset retirements costs. This Statements is effective for financial statements issued for fiscal years beginning after June 15, 2002. It is not anticipated that the
financial impact of this Statement will have a material effect on the Company.



Effective March 30, 2002, the Company implemented SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, which addresses financial accounting and reporting for the
impairment or disposal of long-lived assets. This Statement supersedes SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of, and the accounting and reporting provisions of APB
Opinion No. 30, Reporting the Results of OperationsReporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions, for the disposal of a segment of a
business. The provisions of this Statement generally are to be applied prospectively. The implementation of this Standard did not have a material effect on the Company.



Item 3.    QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISKS



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 the New Taiwan dollar 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 4.    CONTROLS AND PROCEDURES



The Company maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in the Companys Exchange Act reports is recorded, processed,
summarized and reported within the time periods specified in the SECs rules and forms, and that such information is accumulated and communicated to the Companys management, including its Chief Executive Office and Chief Financial
Officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated,
can provide only reasonable assurance of achieving the desired control objectives and management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.



Within 90 days prior to the date of this report, the Company
carried out an evaluation, under the supervision and with the participation of the Companys management, including the Companys Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the
Companys disclosure controls and procedures. Based on the foregoing, the Companys Chief Executive Officer and Chief Financial Officer concluded that the Companys disclosure controls and procedures were effective.



There have been no significant changes in the Companys
internal controls or in other factors that could significantly affect the internal controls subsequent to the date the Company completed its evaluation.



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PART IIOTHER
INFORMATION



Item 1.    Legal Proceedings.    See Item 3.    Legal Proceedings in the Companys Form 10-K for the year ended March 29, 2002, filed with the Securities and Exchange Commission on June 27,
2002 and the disclosure below in Item 5.



Item
2.    Changes in Securities and Use of Proceeds.    None



Item 3.    Defaults Upon Senior Securities.    None



Item 4.    Submission of Matters to a Vote of Security Holders.    None



Item 5.    Other Information.



Litigation Impacting Aftermarket Collision Replacement Parts.    Over the past fifteen years, there have been numerous lawsuits brought relating to the use of aftermarket parts in repairing motor vehicles.
Initially, these cases were brought primarily by automobile manufacturers (OEMs) against manufacturers and distributors of aftermarket parts seeking to protect their trademarks, copyrights and other proprietary interests in replacement parts. In
more recent years, class action attorneys have commenced numerous cases against insurance companies primarily alleging a violation of the insurance contract and state consumer laws relating to the specification of aftermarket crash parts in the
repair of policyholders vehicles on the theory that aftermarket parts are inferior to OEM parts and thus incapable of restoring a vehicle to its pre-loss condition as required in many insurance policies. Another line of cases
currently in the courts is referred to as the Diminished Value cases, the contention being that an insured should be compensated by the insurance company for the difference between the pre-loss value of the vehicle and the value after
the vehicle is repaired.



The leading case
involving aftermarket crash partsAvery v. State Farm Insurance Companywas brought in Marion, Illinois in July 1997. In that case, the plaintiffs asserted claims for breach of contract, consumer fraud and equitable relief relating
to State Farms then practice of sometimes specifying aftermarket parts rather than OEM parts when adjusting claims for the damage to insured vehicles. 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. In October 1999, after a lengthy trial, the jury in Avery awarded the plaintiffs compensatory damages of approximately $586 million. In
addition, 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, resulting in an aggregate award of $1.06
billion. Thereafter, a Petition for Allowance of Appeal to the Illinois Supreme Court was filed by State Farm. In October, 2002, the Illinois Supreme Court agreed to hear the appeal.



Shortly after the verdict in the Avery case, State Farm and many other insurance companies suspended
their practice of specifying non-OEM crash parts on repair estimates. In early 2001, however, certain insurance companies announced that they were again going to specify certain aftermarket parts in the repair of insured vehicles. While several
insurance companies are once again specifying non-OEM crash parts, the action of insurance companies following the State Farm decision has had, and continues to have, an adverse impact on the Companys sales and net income.



Until May 2002, the Company had not been a party to any of the
lawsuits filed against insurance companies. In March 2002, a Philadelphia Court certified a 50-state class joining all Erie policyholders whose cars had been repaired with one or more of 25 specific parts or had received monetary compensation based
on the value of these parts between 1994 and the date the complaint was filed. In May 2002, Keystone, along with 44 other manufacturers and distributors of aftermarket crash parts, were joined as additional defendants in a class action filed in the
Philadelphia County Court of Common Pleas in Philadelphia, Pennsylvania, captioned Foultz v. Erie Insurance Exchange and Erie Insurance Company, et al. Plaintiff alleges, among other things, that she was the holder of an Erie Insurance
Company (Erie) automobile insurance policy, that her vehicle had been in an accident and, at the direction of Erie, certain of the parts used to repair her vehicle were aftermarket parts rather than original equipment manufacturer parts.
Plaintiff alleges that the aftermarket parts were defective, inferior and substandard compared to OEM parts and failed to restore her vehicle to its pre-loss condition and value in violation of her insurance contract and in violation of Pennsylvania
laws.



Erie alleges that Keystone and the other
additional defendants are liable to the policyholders and, to Erie by way of indemnification, based upon breach of express and implied warranties, for misrepresenting the quality of their aftermarket parts, negligence and violation of Pennsylvania
consumer protection law. No specific amount of damages are sought by plaintiff on behalf of the class or by Erie. As of January 29, 2003, Erie and the plaintiffs have reached a tentative settlement of the class action and the judge in the case has
stayed all activity pending the settlement. The settlement, as proposed, would result in the dismissal of all claims against Keystone without cost to Keystone. There can be no assurance that the case will settle because it is subject to a final
agreement among the parties and court approval of the terms.



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Currently,
there are a number of aftermarket parts cases pending in various jurisdictions across the country. Other than the Erie case, the Company has not been made a party in any of these cases. There can be no assurance, however, that Keystone will not be
brought into one of these cases or some other aftermarket parts case in the future.



A recent case in the State of Georgia has upheld the Diminished Value theory. In Mabry v. State Farm Mutual Automobile Ins. Co., the Georgia Supreme Court ruled that the insurer is obligated to pay not
only the cost of repairs, but also the loss in the value of a damaged and repaired vehicle. Since no distinction appears to have been made in that case between original and aftermarket parts, the impact, if any, on the Company is uncertain. Other
Diminished Value cases are pending against insurance companies.



A substantial portion of the Companys business consists of the distribution of aftermarket crash parts to collision repair shops, the vast majority of the customers of the repair shops are covered by insurance policies. In the
event that the State Farm verdict is repeated in other similar cases, with the result that aftermarket 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. Should this occur, OEMs would likely have monopoly pricing power with respect to many of the products required to repair damaged vehicles. In addition, if the Company were to become a defendant
in additional aftermarket parts cases, the costs of defense and the potential for liability could have a material adverse impact on the Company.



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 limited 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.



Other Litigation.    In November 2002, General Motors Corporation instituted suit against Keystone and a Taiwan-based manufacturer in the Federal District Court for the Eastern District of Michigan,
Southern Division. The complaint alleges that Keystone is distributing, replacement grilles for General Motors vehicles with a placeholder matched exactly to the Chevrolet Bow Tie design emblem and the GMC mark emblem,
which infringes on General Motors federal, state and common law trademarks. The suit claims this violates the Lanham Act and constitutes unfair competition under Michigan law. General Motors is seeking damages in an unspecified amount as well
as certain equitable relief, including an injunction. Keystone has only recently been served with the complaint and has not yet been able to thoroughly evaluate the case and obtain advice of counsel.



Based on a preliminary evaluation, Keystone believes that it
has meritorious defenses and intends to defend its business practices. The Company estimates the products in question will constitute an immaterial percentage of total sales once it formally ascertains which products are the subject of the
complaint. Consequently, Keystone believes that whatever the outcome of the case, it will not have a material adverse impact on the Companys operations or financial condition.



Federal and State Action.    During the past five years, legislation was
introduced or considered in the majority of states seeking to prohibit or limit the use of aftermarket parts in collision repair work and/or to require special disclosure before using aftermarket parts. During 2002, 37 separate bills have been
considered in 14 states and, to date, none have passed into law. As of February 1, 2003, 25 bills were pending in eight states. The Company anticipates that additional bills will be introduced in 2003.



To date, legislation has passed in only eight states requiring
some form of consent from the vehicle owner prior to installing aftermarket collision replacements parts. Approximately 31 states require consumer disclosure to vehicle owners. 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 aftermarket crash parts, it could have a material adverse impact on the Company.



In addition, during 2000, a U.S. Congressman requested that the General Accounting Office (GAO)
review the role of the National Highway Traffic 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.



Prelude Software System Installation.    The Company is at a crucial juncture in developing and installing an enterprise-wide management information system, consolidating the 11 systems under which
the Company now operates. This is an extremely costly and time-consuming process and an effective implementation is necessary to enable the Company to continue to grow and prosper in the future. In January 2002 the Company entered into an agreement
with Prelude Systems, Inc. (Prelude) for the purchase of a software package which will enable the Company to migrate to an enterprise-wide system. The Company has also entered into other software license agreements and engaged service
providers to enable it to fully implement the Prelude system. The Prelude system includes, among other capabilities, modules for financial reporting (general ledger, accounts payable and receivable and fixed assets),



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order entry, purchasing and
distribution management (inventory and warehouse management and replenishment). Keystone is adopting the Prelude modules with limited customization.



Management installed the system at five locations in California starting on July 1, 2002 as beta sites and adjustments to the system were
made during this first implementation phase. The system was then installed in five additional locations in late October 2002. Because of the increased sales activity at most locations during what is the busiest time of the year for the Company, a
decision was reached to delay further installation until April 2003. As a result, complete installation of the system company-wide is now expected by October 2004.



It is estimated that total costs from inception through the complete roll-out will be approximately $16.0
million, which includes hardware, software, infrastructure and employee related expenses. Through December 27, 2002, the Company had capitalized approximately $3.4 million of costs, primarily software licenses and hardware. The Company estimates
that the total amount to be capitalized through implementation will be approximately $7.0 million. The balance of the costs will be expensed as incurred. The cost and timing for a project such as the Company is undertaking are subject to numerous
uncertainties some of which are beyond the control of the Company and others of which cannot be foreseen at the present time. Consequently, the ultimate functionality may not meet the needs of the operations and the cost and timing to implement the
Prelude system Company-wide may vary greatly from the estimates set forth above.



Continued Acceptance of Aftermarket Collision Replacement Parts.    Based upon industry sources, the Company estimates that approximately 85% 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.



Disruption of
Shipping.    The Companys operations are dependent on a continued source of supply of the many automotive body parts, which are presently only available from Taiwan. These products are transported to the United States
aboard container ships which dock primarily in the Los Angeles, California area. Any disruption in shipping, whether from labor issues or acts of terrorism, for any prolonged period would likely have a material adverse impact on the Companys
sales and earnings.



Item 6.    Exhibits and Reports on Form 8-K.



a.    Exhibits



|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.                                                                                                        
|           
|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.                                                                                                                               





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|             
|-------------
|10.11(12)(A) 
|             
|10.12(A)     
|             
|10.13(A)     
|             
|10.14(1)     
|             
|10.15(1)     
|             
|10.16(1)     
|             
|10.17(3)     
|             
|10.18(3)     
|             
|10.19(7)     
|             
|10.20(7)     
|             
|10.21(9)     
|             
|10.22(9)     
|             
|10.23(10)    
|             
|10.24(13)    
|             
|10.25(13)    
|             
|10.26(4)     
|             
|10.27(4)     
|             
|10.28(4)     
|             
|10.29(4)     
|             
|10.30(14)(A) 
|             
|10.31(15)    
|             
|10.32 (16)(A)
|             
|10.33 (16)   

---

|*    |  | 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 as an Exhibit to Registrants Form 8-K filed with the Securities and Exchange Commission on February 19,
2002.                                          
|(16) |  | Filed as an Exhibit to Registrants Form 10-K filed with the Securities and Exchange Commission on June 27,
2002.                                             
|(A)  |  | A management contract or compensatory plan or arrangement as defined in Item 601 of Regulation
S-K.                                                           



b.    Reports on form 8-KNone





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SIGNATURES



Pursuant
to the requirements of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.



KEYSTONE AUTOMOTIVE INDUSTRIES, INC.By:

/s/    JOHN M. PALUMBOJohn M. Palumbo Chief Financial Officer (Duly Authorized Officer and Principal Financial     and Accounting
Officer)




Date:    February 10, 2003



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I, Charles J. Hogarty, certify that:



1.    I have reviewed this quarterly report on Form 10-Q of Keystone Automotive Industries, Inc.;



2.    Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to
state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;



3.    Based on my knowledge, the financial
statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this
quarterly report;



4.    The
registrants other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:



a)    designed such
disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly
report is being prepared;



b)    evaluated the effectiveness of the registrants disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the Evaluation Date); and



c)    presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;



5.    The registrants other
certifying officer and I have disclosed, based on our most recent evaluation, to the registrants auditors and the audit committee of registrants board of directors (or person performing the equivalent function):



a)    all significant
deficiencies in the design or operation of internal controls which could adversely affect the registrants ability to record, process, summarize and report financial data and have identified for the registrants auditors any material
weaknesses in internal controls; and



b)    any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal controls; and



6.    The registrants other
certifying officer and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.



|                                     
|-------------------------------------
|/s/    CHARLES J.
HOGARTY            
|Charles J. Hogarty                   
|President and Chief Executive Officer

Date:    February 10, 2003



19



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##### Table of Contents



I, John M.
Palumbo, certify that:



1.    I have reviewed this quarterly report on Form 10-Q of Keystone Automotive Industries, Inc.;



2.    Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to
state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;



3.    Based on my knowledge, the financial
statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this
quarterly report;



4.    The
registrants other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:



a)    designed such
disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly
report is being prepared;



b)    evaluated the effectiveness of the registrants disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the Evaluation Date); and



c)    presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;



5.    The registrants other
certifying officer and I have disclosed, based on our most recent evaluation, to the registrants auditors and the audit committee of registrants board of directors (or person performing the equivalent function):



a)    all significant
deficiencies in the design or operation of internal controls which could adversely affect the registrants ability to record, process, summarize and report financial data and have identified for the registrants auditors any material
weaknesses in internal controls; and



b)    any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal controls; and



6.    The registrants other
certifying officer and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.



|                                       
|---------------------------------------
|/s/    JOHN M. PALUMBO                 
|John M. Palumbo Chief Financial Officer

Date:    February 10, 2003



20