-----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, FjuWizauUdYAIdOvfL5lBMKmkIT+1D35dlk72+T54Rtp7CS4RcqdoEj0/8vlO1hy QSQPK+KEPF9v0xHSXzZmzA== 0000868780-98-000003.txt : 19980512 0000868780-98-000003.hdr.sgml : 19980512 ACCESSION NUMBER: 0000868780-98-000003 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980328 FILED AS OF DATE: 19980511 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: SEC FILE NUMBER: 000-18914 FILM NUMBER: 98614983 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 - 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 March 28, 1998 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 May 8, 1998 the Registrant had 8,068,581 common shares, $.01 par value, outstanding. - -------------------------------------------------------------------------------- R & B, INC. AND SUBSIDIARIES INDEX TO QUARTERLY REPORT ON FORM 10-Q MARCH 28, 1998 Page Part I -- FINANCIAL INFORMATION Item 1.Consolidated Financial Statements (unaudited) Statements of Income: Thirteen Weeks Ended March 28, 1998 and March 29, 1997 3 Balance Sheets....................................... 4 Statements of Cash Flows............................. 5 Notes to Financial Statements........................ 6 Item 2.Management's Discussion and Analysis of Results of Operations and Financial Condition.............................. 7 Part II -- OTHER INFORMATION Item 1.Legal Proceedings.................................... 11 Item 6.Exhibits and Reports on Form 8-K..................... 11 Signature .............................................. 12 Page 2 of 12 PART I. FINANCIAL INFORMATION R&B, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (unaudited)
For the Thirteen Weeks Ended ------------------------------ March 28, March 29, (in thousands, except per share data) 1998 1997 - -------------------------------------------------------------------------------------------- Net Sales $39,012 $33,299 Cost of goods sold 23,985 19,994 - -------------------------------------------------------------------------------------------- Gross profit 15,027 13,305 Selling, general and administrative expenses 12,235 10,692 - -------------------------------------------------------------------------------------------- Income from operations 2,792 2,613 Interest expense, net 940 1,100 - -------------------------------------------------------------------------------------------- Income before taxes 1,852 1,513 Provision for taxes 676 552 - -------------------------------------------------------------------------------------------- Net Income $ 1,176 $ 961 ============================================================================================ Earnings Per Share Basic $0.14 $0.12 Diluted 0.14 0.12 Average Shares Outstanding Basic 8,318 8,027 Diluted 8,409 8,027 ============================================================================================
The accompanying Notes are an integral part of these Consolidated Financial Statements. Page 3 of 12 R&B, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
March 28, December 27, (in thousands, except share data) 1998 1997 - --------------------------------------------------- ----------------- ----------------- (unaudited) Assets Current Assets: Cash and cash equivalents $2,478 $1,601 Accounts receivable, less allowance for doubtful accounts and customer credits of $7,332 and $7,214 38,099 37,536 Inventories 44,186 38,264 Deferred income taxes 1,186 1,186 Prepaids and other current assets 698 1,461 - --------------------------------------------------- ----------------- ----------------- Total current assets 86,647 80,048 - --------------------------------------------------- ----------------- ----------------- Property, Plant and Equipment, net 16,300 16,382 Intangible Assets 32,055 29,747 Other Assets 2,471 2,530 - --------------------------------------------------- ----------------- ----------------- Total $137,473 $128,707 =================================================== ================= ================= Liabilities and Shareholders' Equity Current Liabilities: Current portion of long-term debt $ 7,237 $6,611 Accounts payable 12,364 8,982 Accrued compensation 3,009 2,923 Other accrued liabilities 4,991 2,923 - --------------------------------------------------- ----------------- ----------------- Total current liabilities 27,601 21,439 Long-Term Debt 43,120 44,336 Deferred Income Taxes 1,770 1,770 Commitments and Contingencies (Note 5) Shareholders' Equity: Common stock, par value $.01; authorized 25,000,000 shares; issued 8,318,037 and 8,026,254 83 81 Additional paid-in capital 32,901 30,221 Cumulative translation adjustments (38) - Retained earnings 32,036 30,860 Total shareholders' equity 64,982 61,162 - --------------------------------------------------- ----------------- ----------------- Total $137,473 $128,707 =================================================== ================= =================
The accompanying Notes are an integral part of these Consolidated Financial Statements. Page 4 of 12 R&B, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
For the Thirteen Weeks Ended -------------------------------------- March 28, March 29, (in thousands) 1998 1997 - -------------------------------------------------------------- ------------------ ------------------- Cash Flows from Operating Activities: Net income $ 1,176 $961 Adjustments to reconcile net income to cash provided by operating activities: Depreciation and amortization 1,156 1,079 Provision for doubtful accounts 132 68 Changes in assets and liabilities, net of effects of acquisitions: Accounts receivable 282 678 Inventories (3,212) (755) Prepaids and other current assets 980 95 Other assets (44) (852) Accounts payable 2,013 350 Other accrued liabilities 1,301 1,035 - -------------------------------------------------------------- ------------------ ------------------- Cash provided by operating activities 3,784 2,659 - -------------------------------------------------------------- ------------------ ------------------- Cash Flows from Investing Activities: Property, plant and equipment additions (573) (476) Business acquisitions, net of cash acquired (980) - - -------------------------------------------------------------- ------------------ ------------------- Cash used in investing activities (1,553) (476) - -------------------------------------------------------------- ------------------ ------------------- Cash Flows from Financing Activities: ACTIVITIES: a Net proceeds from revolving credit 500 1,650 Repayment of term loans and capitalized lease obligations (1,866) (1,516) Proceeds from common stock issuances 12 - - -------------------------------------------------------------- ------------------ ------------------- Cash (used in) provided by financing activities (1,354) 134 - -------------------------------------------------------------- ------------------ ------------------- Net Increase in Cash and Cash Equivalents 877 2,317 Cash and Cash Equivalents, Beginning of Period 1,601 923 - -------------------------------------------------------------- ------------------ ------------------- Cash and Cash Equivalents, End of Period $2,478 $3,240 ============================================================== ================== =================== Supplemental Cash Flow Information Cash paid for interest expense $ 834 $ 732 Cash paid for income taxes $ 32 $ 590
The accompanying Notes are an integral part of these Consolidated Financial Statements. Page 5 of 12 R&B, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE THIRTEEN WEEKS ENDED MARCH 28, 1998 AND MARCH 29, 1997 (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 thirteen week period ended March 28, 1998 are not necessarily indicative of the results that may be expected for the fiscal year ending December 26, 1998. 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 27, 1997. 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: March 28, December 27, (in thousands) 1998 1997 - ------------------- -------------- -------------- Bulk product $22,909 $21,800 Finished product 16,945 12,737 Packaging materials 4,332 3,727 - ------------------- -------------- -------------- Total $44,186 $38,264 =================== ============== ============== 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 March 28, 1998, goodwill was $30.7 million, patents were $1.2 million and the non-compete covenant was $0.2 million. Amortization of these assets was $0.3 million and $0.3 in the first quarter of 1998 and 1997, respectively. 4. Earnings Per Share The Company adopted Statement of Financial Accounting Standards No. 128 (SFAS 128), "Earnings Per Share" in 1997. In conformity with SFAS 128, the Company has included basic and diluted earnings per share on the face of the Statements of Income for each year presented. The difference between basis and diluted average shares outstanding is the dilutive effect of stock options. Page 6 of 12 R&B, INC. AND SUBSIDIARIES 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 of 1998, the Company acquired the outstanding stock of Scan-Tech USA/Sweden AB ("Scan-Tech"). Headquartered in Stockholm, Sweden, Scan-Tech is a distributor of replacement automotive parts, primarily Volvo and Saab, throughout Europe, the United States, Russia, the Middle East, and the Far East. Page 7 of 12 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 -------------------------------------------------- March 28, March 29, 1998 1997 - --------------------------------------- ------------------------- ------------------------ Net sales 100.0% 100.0% Cost of goods sold 61.5 60.0 - --------------------------------------- ------------------------- ------------------------ Gross profit 38.5 40.0 Selling, general and administrative expenses 31.4 32.2 - --------------------------------------- ------------------------- ------------------------ Income from operations 7.1 7.8 Interest expense, net 2.4 3.3 - --------------------------------------- ------------------------- ------------------------ Income before taxes 4.7 4.5 Provision for taxes 1.7 1.7 - --------------------------------------- ------------------------- ------------------------ Net income 3.0% 2.9% ======================================= ========================= ========================
Thirteen Weeks Ended March 28, 1998 Compared to Thirteen Weeks Ended March 29, 1997 Net sales increased to $39.0 million for the thirteen weeks ended March 28, 1998 from $33.3 million for the same period in 1997, an increase of 17.2%. The acquisition of Scan-Tech accounted for $3.2 million of this increase while the remaining $2.5 million resulted from increased sales in all segments of our core business, particularly the retail segment. Cost of goods sold for the thirteen weeks ended March 28, 1998 increased to $24.0 million from $20.0 million for the same period in 1997, an increase of 20.0%. As a percent of net sales, cost of goods sold for the thirteen weeks ended March 28, 1998 increased to 61.5% from 60.0% for the thirteen weeks ended March 29, 1997. This percentage increase resulted from the acquisition of Scan-Tech, which realizes lower gross margins than the Company's historical levels, and increased sales to the Company's largest customers, which have relatively lower margins. Selling, general and administrative expenses for the thirteen weeks ended March 28, 1998 increased to $12.2 million from $10.7 million for the thirteen weeks ended March 29, 1997, an increase of 14.4%. As a percent of net sales, however, selling, general and administrative expenses decreased to 31.4% from 32.1%. The increase of $1.5 million includes the expenses for Scan-Tech ($0.3 million), recruiting fees for new employees, increased salaries, freight, commissions and amortization of goodwill associated with Scan-Tech. Interest expense, net, decreased to $0.9 million for the thirteen weeks ended March 28, 1998 from $1.1million for the thirteen weeks ended March 29, 1997. This decrease was the result of lower borrowings. A provision for income taxes of $0.7 million was recorded for the thirteen weeks ended March 28, 1998 and $0.6 million was recorded for the thirteen weeks ended March 29, 1997. The Company's effective tax rate was 36.5% for both periods. Net income increased to $1.2 million for the thirteen weeks ended March 28, 1998 from $1.0 million for the thirteen weeks ended March 29, 1997. As a percentage of net sales, net income increased to 3.0% for the thirteen week period in 1998 from 2.9% for the same period in 1997. Page 8 of 12 Liquidity and Capital Resources The Company has financed its growth primarily through cash flow from its operations and borrowings under its credit facility. Working capital was $59.0 million as of March 28, 1998 and $64.1 million as of March 29, 1997. 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 provided by operating activities was $3.8 million for the thirteen weeks ended March 28, 1998 and $2.7 million for the thirteen weeks ended March 29, 1997. These amounts represent net income plus depreciation and amortization less changes in working capital. During 1998, the most significant changes were increases in inventories, accounts payable and other accrued liabilities. During 1997, the most significant changes were increases in other accrued liabilities, other assets and inventories. Net cash used in investing activities amounted to $1.6 million and $0.5 million for the thirteen weeks ended March 28, 1998 and March 29, 1997, respectively. In 1998, the acquisition of Scan-Tech and additions to property, plant and equipment accounted for the investing activities. In 1997, additions to property, plant and equipment accounted for all of the cash used. Net cash used in financing activities amounted to $1.3 million for the thirteen weeks ended March 28, 1998 and net cash provided by financing activities amounted to $0.1 million for the thirteen weeks ended March 29, 1997. In 1998, repayments of term loans and capitalized leases was partially offset by advances under the Company's revolving credit facility. In 1997, proceeds from the Company's revolving credit facility nearly equaled the repayment of term loans and capitalized lease obligations. Commercial Borrowings. In January 1995, the Company expanded its credit facility to $60.0 million from a syndicate of commercial banks comprised of CoreStates Bank, N.A. (agent), The Fifth Third Bank N.A. and a third bank who was replaced by National City Bank in 1997. The credit facility consists of a term portion of $25.0 million (1995 Term Loan), a revolving credit portion of $30.0 million, and a letter of credit portion of $5.0 million 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 $3.5 million in 1998 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 expires January 31, 2001. In April 1996, the Company amended its credit facility to include a new $12.0 million term loan (1996 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. 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 110 basis points. 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. In December 1996, the revolving credit portion of the facility was increased from $30.0 million to $35.0 million. Borrowings under the revolving credit portion of the facility and the 1996 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 March 28, 1998, the Company had borrowings of $24.5 million under the term loans and $19.0 million under the revolving facility and has $16.0 million of borrowing capacity under the revolving facility. 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. Page 9 of 12 Capitalized Leases. The Company's leases for its Pennsylvania and Georgia facilities are recorded as capitalized leases in the Company's financial statements. Foreign Currency Fluctuations. Approximately 40% of the Company's products are purchased from a variety of foreign countries. The products generally are purchased through purchase orders with the purchase price specified in U.S. dollars. Accordingly, the Company does not have exposure to fluctuation in the relationship between the dollar and various foreign currencies between the time of execution of the purchase order and payment for the product. However, to the extent that the dollar decreases in value to foreign currencies in the future, the price of the product in dollars for new purchase orders may increase. The Company attempts to lessen the impact of these currency fluctuations by resourcing its purchases to other countries. 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. The Acquisition of Scan-Tech In January 1998, the Company acquired the outstanding stock of Scan-Tech USA/Sweden AB and related entities ("Scan-Tech"). Headquartered in Stockholm, Sweden, Scan-Tech is a distributor of replacement automotive parts, primarily Volvo and Saab, throughout Europe, the United States, Russia, the Middle East and Far East with annual sales of approximately $10 million in 1997. The acquisition was effected through the payment of $1 million in cash, 350,000 shares of the Company's common stock and assumption of certain liabilities including approximately $0.8 million in bank debt. Of the shares, 250,000 will vest over four years and will be included in the computation of the purchase price. The remaining 100,000 are subject to performance criteria and will be included in the computation of purchase price as the criteria are met. The Champ Transaction In October 1997, the Company announced that it had signed a letter of intent to acquire selective assets of the Service Line Division (" Champ") of Standard Motor Products, Inc. for approximately $8 million representing the net asset value of inventories. Headquartered in Edwardsville, Kansas, the Service Line Division includes the Champ Service Line, APS Service Line and Pik-A-Nut. Champ had annual sales of approximately $40 million in 1997. The transaction is expected to close in the third quarter of 1998, and is subject to certain pre-closing conditions and post-closing adjustments. The Company has arranged for an additional $10 million in term debt from its bank syndicate which it expects to use to finance this acquisition and associated costs. The new debt, with interest at Libor plus 130 basis points, has a five-year term and will be payable in equal quarterly installments of $0.5 beginning in October, 1998. Page 10 of 12 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. 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 11 of 12 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 May 11, 1998 \s\ Richard Berman Richard Berman President Date May 11, 1998 \s\ Malcolm Walter Malcolm Walter Chief Financial & Accounting Officer Page 12 of 12 EX-27 2 3/28/98 FINANCIALS
5 1,000 OTHER DEC-26-1998 DEC-28-1997 MAR-28-1998 2,478 0 45,431 (7,332) 44,186 86,647 30,906 (14,606) 137,473 27,601 43,120 0 0 83 64,899 137,473 39,012 39,012 23,985 12,235 0 0 940 1,852 676 1,176 0 0 0 1,176 0.14 0.14
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