-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, E5WHmPAvGS65U5FGUN2sYsGUJz8UnylMBXzcVpb0m89mGgE05BPXcFSvWB983595 sxQGNV214HbQ9qwauKhpng== 0000868780-96-000005.txt : 19961113 0000868780-96-000005.hdr.sgml : 19961113 ACCESSION NUMBER: 0000868780-96-000005 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960928 FILED AS OF DATE: 19961112 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: R & B INC CENTRAL INDEX KEY: 0000868780 STANDARD INDUSTRIAL CLASSIFICATION: MOTOR VEHICLE PARTS & ACCESSORIES [3714] IRS NUMBER: 232078856 STATE OF INCORPORATION: PA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-18914 FILM NUMBER: 96659398 BUSINESS ADDRESS: STREET 1: 3400 E WALNUT ST CITY: COLMAR STATE: PA ZIP: 18915 BUSINESS PHONE: 2159971800 MAIL ADDRESS: STREET 1: 3400 E WALNUT ST CITY: COLMAR STATE: PA ZIP: 18915 10-Q 1 QUARTERLY REPORT FOR R&B, INC. - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ------------------- FORM 10-Q ------------------- |X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 28, 1996 OR |_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 ------------------- Commission file number 0-18914 R&B, INC. Incorporated pursuant to the Laws of the Commonwealth of Pennsylvania ------------------- IRS - Employer Identification No. 23-2078856 3400 East Walnut Street, Colmar, Pennsylvania 18915 (215) 997-1800 ------------------- 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 |_| As of November 1, 1996 the Registrant had 8,025,196 common shares, $.01 par value, outstanding. - -------------------------------------------------------------------------------- R & B, INC. INDEX TO QUARTERLY REPORT ON FORM 10-Q SEPTEMBER 28, 1996 Page Part I -- FINANCIAL INFORMATION Item 1.Consolidated Financial Statements (unaudited) Statements of Income: Thirteen Weeks Ended September 28, 1996 and September 30, 1995.............................. 3 Thirty-nine Weeks Ended September 28, 1996 and September 30, 1995.............................. 4 Balance Sheets....................................... 5 Statement of Shareholders' Equity.................... 6 Statements of Cash Flows............................. 7 Notes to Financial Statements........................ 8 Item 2.Management's Discussion and Analysis of Results of Operations and Financial Condition.............................. 11 Part II -- OTHER INFORMATION Item 1.Legal Proceedings.................................... 15 Item 6.Exhibits and Reports on Form 8-K..................... 15 Signature .............................................. 16 Page 2 of 16 PART I. FINANCIAL INFORMATION R&B, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (unaudited)
For the Thirteen Weeks Ended ---------------------------- September 28, September 30, (in thousands, except per share data) 1996 1995 - ------------------------------------------------------------------------------------------ Net Sales $38,529 $29,473 Cost of goods sold 23,416 17,894 - ------------------------------------------------------------------------------------------ Gross profit 15,113 11,579 Selling, general and administrative expenses 10,842 8,454 - ------------------------------------------------------------------------------------------ Income from operations 4,271 3,125 Interest expense, net 1,095 920 - ------------------------------------------------------------------------------------------ Income before taxes 3,176 2,205 Provision for taxes 1,169 787 - ------------------------------------------------------------------------------------------ Net Income $ 2,007 $ 1,418 ========================================================================================== Earnings Per Share $ 0.25 $ 0.18 ========================================================================================== Average Shares Outstanding 7,997 7,985 ==========================================================================================
The accompanying Notes are an integral part of these Consolidated Financial Statements. Page 3 of 16 CONSOLIDATED STATEMENTS OF INCOME (unaudited)
For the Thirty-nine Weeks Ended ----------------------------- September 28, September 30, (in thousands, except per share data) 1996 1995 - ------------------------------------------------------------------------------------------- Net Sales $110,747 $89,371 Cost of goods sold 67,708 55,294 - ------------------------------------------------------------------------------------------- Gross profit 43,039 34,077 Selling, general and administrative expenses 32,550 24,772 - ------------------------------------------------------------------------------------------- Income from operations 10,489 9,305 Interest expense, net 3,085 2,715 - ------------------------------------------------------------------------------------------- Income before taxes 7,404 6,590 Provision for taxes 2,712 2,337 - ------------------------------------------------------------------------------------------- Net Income $ 4,692 $ 4,253 =========================================================================================== Earnings Per Share $ 0.59 $ 0.53 =========================================================================================== Average Shares Outstanding 7,988 7,975 ===========================================================================================
The accompanying Notes are an integral part of these Consolidated Financial Statements. Page 4 of 16 CONSOLIDATED BALANCE SHEETS
September 28 December 30, (in thousands, except share data) 1996 1995 - --------------------------------------------------- ----------------- ----------------- (unaudited) Assets Current Assets: Cash and cash equivalents $ 1,945 $ 1,247 Accounts receivable, less allowance for doubtful accounts and customer credits of $8,488 and $7,479 34,433 22,996 Inventories 42,586 34,948 Deferred income taxes 1,935 1,910 Prepaids and other current assets 357 1,348 - --------------------------------------------------- ----------------- ----------------- Total current assets 81,256 62,449 - --------------------------------------------------- ----------------- ----------------- Property, Plant and Equipment, net 14,959 13,270 Intangible Assets 31,126 28,028 Other Assets 2,666 2,728 - --------------------------------------------------- ----------------- ----------------- Total $130,007 $106,475 =================================================== ================= ================= Liabilities and Shareholders' Equity Current Liabilities: Current portion of long-term debt $ 5,881 $ 3,076 Accounts payable 9,162 4,711 Accrued compensation 2,577 1,926 Other accrued liabilities 2,287 1,177 - --------------------------------------------------- ----------------- ----------------- Total current liabilities 19,907 10,890 Long-Term Debt 56,063 46,629 Deferred Income Taxes 845 735 Commitments and Contingencies (Note 5) Shareholders' Equity: Common stock, par value $.01; authorized 25,000,000 shares; issued 8,025,110 and 7,982,561 80 80 Additional paid-in capital 29,936 29,657 Retained earnings 23,176 18,484 Total shareholders' equity 53,192 48,221 - --------------------------------------------------- ----------------- ----------------- Total $130,007 $106,475 =================================================== ================= =================
The accompanying Notes are an integral part of these Consolidated Financial Statements. Page 5 of 16 CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY (unaudited)
Common Stock ----------------------- Additional Shares Par Paid-In Retained (in thousands, except share data) Issued Value Capital Earnings Total - ------------------------------------ ----------- ---------- -------------- -------------- -------------- Balance at December 30, 1995 7,982,561 $80 $29,657 $18,484 $48,221 Common stock sold to Employee Stock Purchase Plan 460 - 3 - 3 Common stock sold to 401(k) Retirement Plan 39,464 - 261 - 261 Shares issued under Incentive Stock Plan 2,625 - 15 - 15 Net income - - - 4,692 4,692 Balance at September 28, 1996 8,025,110 $80 $29,936 $23,176 $53,192 ==================================== =========== ========== ============== ============== ==============
The accompanying Notes are an integral part of these Consolidated Financial Statements. Page 6 of 16 CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
For the Thirty-nine Weeks Ended -------------------------------------- September 28, September 30, (in thousands) 1996 1995 - -------------------------------------------------------------- ------------------ ------------------- Cash Flows from Operating Activities: Net income $4,692 $4,253 Adjustments to reconcile net income to cash provided by operating activities: Depreciation and amortization 2,988 2,083 Provision for doubtful accounts 87 - Provision for deferred income tax 85 (130) Changes in assets and liabilities, net of effects of acquisitions: Accounts receivable (9,948) (2,210) Inventories (4,692) (4,523) Prepaids and other current assets 1,257 232 Other assets 16 344 Accounts payable 3,776 (2,557) Other accrued liabilities 1,192 3,081 - -------------------------------------------------------------- ------------------ ------------------- Cash provided by (used in) operating activities (547) 573 - -------------------------------------------------------------- ------------------ ------------------- Cash Flows from Investing Activities: Property, plant and equipment additions (3,693) (1,202) Short-term investments - 600 Business acquisitions (5,228) (42,307) - -------------------------------------------------------------- ------------------ ------------------- Cash used in investing activities (8,921) (42,909) - -------------------------------------------------------------- ------------------ ------------------- Cash Flows from Financing Activities: ACTIVITIES: a Net proceeds from revolving credit 2,925 18,950 Proceeds from term loans 12,000 25,000 Repayment of term loans and capitalized lease obligations (5,038) (1,417) Proceeds from common stock issuances 279 148 Increase in cash overdraft - - - -------------------------------------------------------------- ------------------ ------------------- Cash provided by financing activities 10,166 42,681 - -------------------------------------------------------------- ------------------ ------------------- Net Increase in Cash and Cash Equivalents 698 345 Cash and Cash Equivalents, Beginning of Period 1,247 422 - -------------------------------------------------------------- ------------------ ------------------- Cash and Cash Equivalents, End of Period $1,945 $ 767 ============================================================== ================== =================== Supplemental Cash Flow Information Cash paid for interest expense $2,762 $2,846 Cash paid for income taxes $1,513 $1,778
The accompanying Notes are an integral part of these Consolidated Financial Statements. Page 7 of 16 R&B, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE THIRTY-NINE WEEKS ENDED SEPTEMBER 28, 1996 AND SEPTEMBER 30, 1995 (UNAUDITED) 1. Basis of Presentation The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. However, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. Operating results for the Thirty-nine week period ended September 28, 1996 are not necessarily indicative of the results that may be expected for the fiscal year ending December 28, 1996. For further information, refer to the financial statements and footnotes thereto included in R&B, Inc.'s (the "Company") Annual Report on Form 10-K for the year ended December 30, 1995. 2. Inventories Inventories include the cost of material, freight, direct labor and overhead utilized in the processing of the Company's products. Inventories were as follows: September 28, December 30, (in thousands) 1996 1995 - ------------------- --------------- --------------- Bulk product $20,339 $20,812 Finished product 16,672 10,345 Packaging materials 5,575 3,791 - ------------------- --------------- --------------- Total $42,586 $34,948 =================== =============== =============== 3. Intangible Assets Intangible assets consist of goodwill, patents and a non-compete covenant. Goodwill is amortized over a period of 40 years with patents and the non-compete covenant amortized over the specific life of each asset. At September 28, 1996, goodwill was $29,241,000, patents were $1,643,000 and the non-compete covenant was $242,000. Amortization of these assets was $826,000 for the thirty-nine week period ended September 28, 1996. Page 8 of 16 4. Long-Term Debt Long-term debt consists of borrowings under bank credit facilities, industrial revenue bonds and capitalized lease obligations as follows: September 28, December 30, (in thousands) 1996 1995 - --------------------------------- -------------------- ------------------ Bank credit facility - Term loans $32,625 $23,500 Revolving credit 22,100 18,550 Industrial revenue bonds 4,224 4,453 Capitalized lease obligations 2,995 3,202 - --------------------------------- -------------------- ------------------ Total 61,944 49,705 Less: Current portion (5,881) (3,076) - --------------------------------- -------------------- ------------------ Total long-term debt $56,063 $46,629 ================================= ==================== ================== In April 1996, the Company amended its credit facility to include a new $12,000,000 term loan with interest at a floating rate equal, at the Company's option, to Libor plus 150 basis points, or the bank's prime rate. The loan has a five year term and is payable in equal monthly principal payments of $200,000 beginning in May 1996. Borrowings under the revolving credit portion of the existing credit facility and the new term loan are subject to a borrowing base computation equal to 80% of qualified receivables and 50% of qualified inventories, as defined. Further amendments were made to the agreement including a reduction in the ownership percentage that the original shareholders must maintain from 40% to 25% and a reduction to certain of the financial ratio covenants. In May 1996, the Company entered into an interest rate swap agreement with the agent bank of the syndicate of commercial banks providing the Company's credit facility. The swap agreement has the effect of fixing the interest rate on $11.1 million of term debt to 7.32% from a floating rate of Libor plus 1.1%. The Company is exposed to credit loss in the event of nonperformance under the interest rate swap agreement by the agent bank, however, such nonperformance is not anticipated. 5. Commitments and Contingencies Purchase Commitments - At September 28, 1996, the Company had commitments to purchase inventory of approximately $2,950,000. In conjunction therewith, the Company has entered into irrevocable commercial letter of credit agreements with a bank. As collateral for the letters of credit, the bank has the same security and guarantees as with the Company's credit facility. 6. Acquisitions Dorman - In January 1995, the Company acquired the Dorman Products Division ("Dorman") of SDI Operating Partners, L.P.. Dorman is one of the nation's oldest suppliers of automotive aftermarket parts and fasteners. The acquisition was effected through the payment of approximately $38.5 million in cash, plus the assumption of certain liabilities including approximately $5.0 million in assumption of Industrial Revenue Bonds. The Company accounted for this acquisition using the purchase method of accounting, which resulted in the recording of goodwill of $26.3 million. Cosmos - In August 1995, the Company acquired the outstanding common stock of Cosmos International, Inc. ("Cosmos"), a privately held supplier of protective boots for the constant velocity joints on front-wheel drive vehicles. The Company paid approximately $3.6 million in cash. The acquisition was accounted for by the purchase method, which resulted in the recording of goodwill and other intangible assets of $2.5 million. Page 9 of 16 MPI - In January 1996, the Company acquired the assets of Motor Power Industries Corporation and subsidiary ("MPI"). MPI is a national supplier of auto parts to car dealers, auto salvage yards, specialty rebuilders and niche markets with annual sales of approximately $18 million in 1995. The acquisition was effected through the payment of approximately $5.2 million in cash, plus the assumption of certain liabilities including bank debt of $2.3 million. The acquisition was accounted for by the purchase method, which resulted in the recording of goodwill of $4.0 million. Page 10 of 16 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS General Over the periods presented, the Company has focused its efforts on providing an expanding array of new product offerings and strengthening its relationships with its customers. To that end, the Company has made significant investments to increase market penetration, primarily in the form of product development, customer service, customer credits and allowances, and strategic acquisitions. The Company calculates its net sales by subtracting credits and allowances from gross sales. Credits and allowances include costs for co-operative advertising, product returns, discounts given to customers who purchase new products for inclusion in their stores, and the cost of competitors' products that are purchased from the customer in order to induce a customer to purchase new product lines from the Company. The credits and allowances are designed to increase market penetration and increase the number of product lines carried by customers by displacing competitors' products within customers' stores and promoting consolidation of customers' suppliers. The introduction of new products and product lines to customers may cause significant fluctuations from quarter to quarter in the Company's results of operations. Over the periods presented, the Company has increased the percentage of products sold to its major customers, in part due to consolidation within the automotive aftermarket. As a general rule, sales to the Company's major customers are at lower margins than sales to other customers. In January 1995, the Company acquired the Dorman Products ("Dorman") division of SDI Operating Partners L.P. ("SDI"). Dorman is one of the nation's oldest suppliers of automotive aftermarket parts and fasteners. In August 1995, the Company acquired all of the outstanding common stock of Cosmos International, Inc. ("Cosmos"), a privately held supplier of protective boots for the constant velocity (CV) joints on front- wheel drive vehicles. In January 1996, the Company acquired the assets of Motor Power Industries Corporation and subsidiary ("MPI"). MPI is a national supplier of auto parts to car dealers, auto salvage yards, specialty rebuilders and niche markets. Page 11 of 16 Results of Operations The following table sets forth, for the periods indicated, the percentage of net sales represented by certain items in the Company's Consolidated Statements of Income.
Percentage of Net Sales --------------------------------------------------------------------- For the Thirteen Weeks Ended For the Thirty-nine Weeks Ended --------------------------------- ----------------------------------- September 28, September 30, September 28, September 30, 1996 1995 1996 1995 - ----------------------- --------------- ---------------- ---------------- ------------------ Net sales 100.0% 100.0% 100.0% 100.0% Cost of goods sold 60.8 60.7 61.1 61.9 - ----------------------- --------------- ---------------- ---------------- ------------------ Gross profit 39.2 39.3 38.9 38.1 Selling, general and administrative expenses 28.1 28.7 29.4 27.7 - ----------------------- --------------- ---------------- ---------------- ------------------ Income from operations 11.1 10.6 9.5 10.4 Interest expense, net 2.9 3.1 2.8 3.0 - ----------------------- --------------- ---------------- ---------------- ------------------ Income before taxes 8.2 7.5 6.6 7.4 Provision for taxes 3.0 2.7 2.4 2.6 - ----------------------- --------------- ---------------- ---------------- ------------------ Net income 5.2% 4.8% 4.2% 4.8% ======================= =============== ================ ================ ==================
Thirteen Weeks Ended September 28, 1996 Compared to Thirteen Weeks Ended September 30, 1995 Net sales increased to $38.5 million for the thirteen weeks ended September 28, 1996 from $29.5 million for the same period in 1995, an increase of 30.7%. This increase resulted primarily from sales related to the Cosmos and MPI acquisitions, as well as sales to the Company's largest customers from both existing and new product lines. Cost of goods sold for the thirteen weeks ended September 28, 1996 increased to $23.4 million from $17.9 million for the same period in 1995, an increase of 30.9%. As a percent of net sales, cost of goods sold for the thirteen weeks ended September 28, 1996 remained essentially unchanged from the same period in 1995. Selling, general and administrative expenses for the thirteen weeks ended September 28, 1996 increased to $10.8 million from $8.5 million for the thirteen weeks ended September 30, 1995, an increase of 28.2%. This increase was the result of approximately: $1.6 million representing the operating expenses of the newly acquired businesses (Cosmos and MPI); $0.6 million attributable to shipping labor and overhead costs; and $0.2 million in selling expenses including freight. Interest expense, net, increased to $1.1 million for the thirteen weeks ended September 28, 1996 from $0.9 million for the thirteen weeks ended September 30, 1995. This increase was the result of additional interest expense on borrowings used to acquire Cosmos and MPI. A provision for income taxes of $1.2 million was recorded for the thirteen weeks ended September 28, 1996 and $0.8 million was recorded for the thirteen weeks ended September 30, 1995. The Company's effective tax rate was 36.8% for the thirteen weeks ended September 28, 1996 and 35.7% for the thirteen weeks ended September 30, 1995. The increase in the effective tax rate is primarily the result of increased effective state tax rates. Net income increased to $2.0 million for the thirteen weeks ended September 28, 1996 from $1.4 million for the thirteen weeks ended September 30, 1995. As a percentage of net sales, net income increased to 5.2% for the thirteen week period in 1996 from 4.8% for the same period in 1995. Page 12 of 16 Thirty-nine Weeks Ended September 28, 1996 Compared to Thirty-nine Weeks Ended September 30, 1995 Net sales increased to $110.7 million for the thirty-nine weeks ended September 28, 1996 from $89.4 million for the same period in 1995, an increase of 23.9%. This increase resulted primarily from sales related to the Cosmos and MPI acquisitions, as well as sales to the Company's largest customers from both existing and new product lines. Cost of goods sold for the thirty-nine weeks ended September 28, 1996 increased to $67.7 million from $55.3 million for the same period in 1995, an increase of 22.5%. As a percent of net sales, cost of goods sold for the thirty-nine weeks ended September 28, 1996 decreased to 61.1% from 61.9% for the same period in 1995. The decrease was primarily due to an improved sales mix of higher margin products. Selling, general and administrative expenses for the thirty-nine weeks ended September 28, 1996 increased to $32.6 million from $24.8 million for the thirty-nine weeks ended September 30, 1995, an increase of 31.4%. This increase was the result of approximately: $4.4 million representing the operating expenses of the newly acquired businesses (Cosmos and MPI); $2.0 million attributable to shipping labor and overhead costs; $0.6 million in administrative expenses; $0.4 million in selling expenses including freight; and $0.4 million in marketing expenses including expenses associated with the recently introduced Dorman catalog. Interest expense, net, increased to $3.1 million for the thirty-nine weeks ended September 28, 1996 from $2.7 million for the thirty-nine weeks ended September 30, 1995. This increase was the result of additional interest expense on borrowings used to acquire Cosmos and MPI. A provision for income taxes of $2.7 million was recorded for the thirty-nine weeks ended September 28, 1996 and $2.3 million for the thirty-nine weeks ended September 30, 1995. The Company's effective tax rate was 36.6% for the thirty-nine weeks ended September 28, 1996 and 35.5% for the thirty-nine weeks ended September 30, 1995. The increase in the effective tax rate is primarily the result of increased effective state tax rates. Net income increased to $4.7 million for the thirty-nine weeks ended September 28, 1996 from $4.3 million for the thirty-nine weeks ended September 30, 1995. As a percentage of net sales, net income decreased to 4.2% for the thirty-nine week period in 1996 from 4.8% for the same period in 1995. Liquidity and Capital Resources The Company has financed its growth primarily through cash flow from its operations, borrowings under its credit facility and industrial revenue bonds. Working capital was $61.3 million as of September 28, 1996 and $53.5 million as of September 30, 1995. The Company believes that the cash generated from operations and borrowings available under its revolving credit facility will be sufficient to meet the Company's working capital needs and to fund expansion for the foreseeable future. Net cash used by operating activities was $0.5 million for the thirty-nine weeks ended September 28, 1996 compared to net cash generated by operating activities of $0.6 million for the thirty-nine weeks ended September 30, 1995. These amounts represent net income plus depreciation and amortization less changes in working capital. During 1996, the most significant changes were increases in accounts receivable, accounts payable, and inventories. During 1995, the most significant changes were increases in inventories, accounts payable and other accrued liabilities. Net cash used in investing activities amounted to $8.9 million and $42.9 million for the thirty-nine weeks ended September 28, 1996 and September 30, 1995, respectively. In 1996, the acquisition of MPI and additions to property, plant and equipment including progress payments for the addition at our Warsaw, Kentucky facility represented nearly all of the total investing activities. In 1995, the acquisition of Dorman and Cosmos accounted for nearly all of the investing activities. Net cash provided by financing activities amounted to $10.2 million and $42.7 million for the thirty-nine weeks ended September 28, 1996 and September 30, 1995, respectively. In 1996, cash was received from the Company's credit facility and a new term loan, offset somewhat by the payoff of the debt assumed with the acquisition of MPI and the continued pay down of term debt and capitalized lease obligations. In 1995, nearly all of the funds were provided by borrowings under the Company's credit facility. Page 13 of 16 The Acquisition of Dorman. Dorman was acquired from SDI with the payment of cash consideration in the amount of approximately $38.5 million and the assumption of certain liabilities, including approximately $5.0 million in assumption of Industrial Revenue Bonds ("Bonds"). Pursuant to the Asset Purchase Agreement, the purchase price is subject to adjustment based upon changes in Dorman's balance sheet between June 30, 1994 and December 31, 1994. The Company has made a claim to SDI under this provision. In addition, Dorman has filed a complaint in the United States District Court for the Eastern District of Pennsylvania against SDI for damages resulting from, among other things, an alleged breach of various representations and warranties contained in the Asset Purchase Agreement. SDI has filed a complaint in the Court of Common Pleas, Montgomery County, Pennsylvania against Dorman and the Company for damages relating to certain accounts receivable and is seeking declaratory judgment that SDI has not breached the representations and warranties of the Asset Purchase Agreement as alleged by Dorman in the Federal Court action. In May 1996 the issues were consolidated and will proceed in the Court of Common Pleas. The Acquisition of Cosmos. Cosmos was acquired with the payment of cash con- sideration in the amount of approximately $3.6 million. The Acquisition of MPI. MPI was acquired with the payment of cash consideration in the amount of approximately $5.2 million and the assumption of certain liabilities, including approximately $2.3 million in the assumption of bank debt. Commercial Borrowings. In January 1995, the Company expanded its credit facility to $60,000,000 from a syndicate of commercial banks comprised of CoreStates Bank, N.A. (agent), The Fifth Third Bank N.A. and First Chicago NBD Corporation (formerly NBD Bank). The credit facility consists of a term portion of $25,000,000, a revolving credit portion of $30,000,000, and a letter of credit portion of $5,000,000 used to secure the Bonds. The term portion of the facility bears interest at a floating rate equal, at the Company's option, to Libor plus 110 basis points, or CoreStates Bank, N.A.'s prime rate, has a seven-year term and requires graduated amortization payments in the amount of $2.5 million in 1996 increasing by $0.5 million each year thereafter with a final payment of $6.0 million in 2001. The revolving credit portion bears interest at a floating rate equal, at the Company's option, to Libor plus 85 basis points, or CoreStates Bank, N.A.'s prime rate, and has a three year commitment. In April 1996, the Company amended its credit facility to include a new $12,000,000 term loan with interest at a floating rate equal, at the Company's option, to Libor plus 150 basis points, or the bank's prime rate. The loan has a five year term and is payable in equal monthly principal payments of $200,000 beginning in May 1996. Borrowings under the revolving credit portion of the existing credit facility and the new term loan are subject to a borrowing base computation equal to 80% of qualified receivables and 50% of qualified inventories, as defined. The credit facility is secured by the stock of the Company's subsidiaries and first priority liens on the Company's and subsidiaries assets, including accounts receivable, inventory and all other tangible or intangible property. At September 28, 1996, the Company had borrowings of $32.6 million under the term loans and $22.1 million under the revolving facility (see also Note 4). Industrial Revenue Bonds. Construction of the Company's Warsaw, Kentucky facility in 1990 was funded by the Bonds. The Bonds bear interest at an annual rate of 4% payable monthly and require annual principal payments of $300,000 or $350,000 in alternating years with the final payment due in July, 2009. Capitalized Leases. The Company's leases for its Pennsylvania and Georgia facilities are recorded as capitalized leases in the Company's financial state- ments. Impact of Inflation The Company has not generally been adversely affected by inflation. The Company believes that price increases resulting from inflation generally could be passed on to its customers, since prices charged by the Company are not set by long-term contracts. New Accounting Standards The Company adopted Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-lived Assets and Long-lived Assets to be Disposed Of" in 1995. This Statement, issued in March 1995, requires that long-lived assets, including certain identifiable intangible assets, be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The Company's adoption of FASB Statement No. 121 had no impact on its financial position or results of operations. Page 14 of 16 PART II: OTHER INFORMATION Item 1. Legal Proceedings In addition to commitments and obligation which arise in the ordinary course of business, the Company is subject to various claims and legal actions from time to time involving contracts, competitive practices, trademark rights, product liability claims and other matters arising out of the conduct of the Company's business. On February 27, 1996, the Company's subsidiary, Dorman Products of America, Ltd. ("Dorman"), filed a complaint in the United States District Court for the Eastern District of Pennsylvania against SDI Operating Partners, L.P. ("SDI") for damages resulting from, inter alia, an alleged breach of various representations and warranties contained in the Asset Purchase Agreement dated as of October 5, 1994 between Dorman and SDI. On April 25, 1996, SDI filed a complaint in the Court of Common Pleas, Montgomery County, Pennsylvania against Dorman and the Company for damages of approximately $450,000 resulting from, inter alia, Dorman's alleged failure to use its "best efforts" to assist SDI in collecting certain past due accounts receivable which were not transferred to Dorman as a result of the acquisition. In addition, SDI is seeking declaratory judgment that SDI has not breached the representations and warranties of the Asset Purchase Agreement as alleged by Dorman in the federal court action. In May 1996, the issues were consolidated and will proceed in the Court of Common Pleas. Item 6. Exhibits and Reports on Form 8-K (a) Exhibits Exhibit No. Description 27 Financial Data Schedule (b) Reports on Form 8-K None Page 15 of 16 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. R & B, INC. Date November 11, 1996 Richard Berman Richard Berman President Date November 11, 1996 Malcolm Walter Malcolm Walter Chief Financial Officer Page 16 of 16 EX-27 2 9/28/96 FINANCIALS
5 1,000 OTHER DEC-29-1996 DEC-31-1995 SEP-28-1996 1,945 0 42,921 (8,488) 42,586 81,256 25,713 (10,754) 130,007 19,907 56,063 0 0 80 53,112 130,007 110,747 110,747 67,708 67,708 0 0 3,085 7,404 2,712 4,692 0 0 0 4,692 .59 .59
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