-----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, TwvKYK8SlaLjqaq6+xyrqP2R17hpM0yK5cqDGO/rZ701tYkV3zQ3868O3Q8QTV7b pE+ITQB8E48HwYVg/MSQDg== 0000868780-99-000003.txt : 19990513 0000868780-99-000003.hdr.sgml : 19990513 ACCESSION NUMBER: 0000868780-99-000003 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990327 FILED AS OF DATE: 19990512 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: 1226 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-18914 FILM NUMBER: 99617715 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 27, 1999 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 5, 1999 the Registrant had 8,083,645 common shares, $.01 par value, outstanding. - -------------------------------------------------------------------------------- R & B, INC. AND SUBSIDIARIES INDEX TO QUARTERLY REPORT ON FORM 10-Q MARCH 27, 1999 Page Part I -- FINANCIAL INFORMATION Item 1. Consolidated Financial Statements (unaudited) Statements of Income: Thirteen Weeks Ended March 27, 1999 and March 28, 1998 .................................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 27, March 28, (in thousands, except per share data) 1999 1998 - -------------------------------------------------------------------------------------------- Net Sales $55,946 $39,012 Cost of goods sold 34,261 23,985 - -------------------------------------------------------------------------------------------- Gross profit 21,685 15,027 Selling, general and administrative expenses 17,901 12,235 - -------------------------------------------------------------------------------------------- Income from operations 3,784 2,792 Interest expense, net 1,706 940 - -------------------------------------------------------------------------------------------- Income before taxes 2,078 1,852 Provision for taxes 727 676 - -------------------------------------------------------------------------------------------- Net Income $ 1,351 $1,176 - -------------------------------------------------------------------------------------------- Earnings Per Share: Basic $0.16 $0.14 Diluted 0.16 0.14 Average Shares Outstanding: Basic 8,348 8,318 Diluted 8,381 8,409 - --------------------------------------------------------------------------------------------
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 27, December 26, (in thousands, except share data) 1999 1998 - -------------------------------------------------------------------------------------------- (unaudited) Assets Current Assets: Cash and cash equivalents $ 1,034 $ 915 Accounts receivable, less allowance for doubtful accounts and customer credits of $7,971 and $9,715 60,075 55,585 Inventories 79,252 68,401 Deferred income taxes 1,674 1,674 Prepaids and other current assets 1,431 861 - -------------------------------------------------------------------------------------------- Total current assets 143,466 127,436 - -------------------------------------------------------------------------------------------- Property, Plant and Equipment, net 21,003 20,761 Intangible Assets 33,256 33,640 Other Assets 2,125 2,111 - -------------------------------------------------------------------------------------------- Total $199,850 $183,948 - -------------------------------------------------------------------------------------------- Liabilities and Shareholders' Equity Current Liabilities: Current portion of long-term debt $ 2,663 $ 3,089 Accounts payable 21,635 18,309 Accrued compensation 2,352 2,652 Other accrued liabilities 4,899 5,766 - -------------------------------------------------------------------------------------------- Total current liabilities 31,549 29,816 - -------------------------------------------------------------------------------------------- Long-Term Debt 92,754 80,004 Deferred Income Taxes 2,514 2,514 Commitments and Contingencies Shareholders' Equity: Common stock, par value $.01; authorized 25,000,000 shares; issued 8,350,629 and 8,344,082 83 83 Additional paid-in capital 33,175 33,133 Cumulative translation adjustments 8 (18) Retained earnings 39,767 38,416 - -------------------------------------------------------------------------------------------- Total shareholders' equity 73,033 71,614 - -------------------------------------------------------------------------------------------- Total $199,850 $183,948 - --------------------------------------------------------------------------------------------
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 27, March 28, (in thousands) 1999 1998 - ---------------------------------------------------------------------------------------------------------- Cash Flows from Operating Activities: Net income $ 1,351 $ 1,176 Adjustments to reconcile net income to cash (used in) provided byoperating activities: Depreciation and amortization 1,553 1,156 Provision for doubtful accounts 189 132 Changes in assets and liabilities, net of effects of acquisitions: Accounts receivable (4,679) 282 Inventories (10,851) (3,212) Prepaids and other current assets (570) 980 Other assets (28) (44) Accounts payable 3,352 2,013 Other accrued liabilities (1,167) 1,301 - ---------------------------------------------------------------------------------------------------------- Cash(used in) provided by operating activities (10,850) 3,784 - ---------------------------------------------------------------------------------------------------------- Cash Flows from Investing Activities: Property, plant and equipment additions (1,397) (573) Business acquisitions, net of cash acquired - (980) - ---------------------------------------------------------------------------------------------------------- Cash used in investing activities (1,397) (1,553) - ---------------------------------------------------------------------------------------------------------- Cash Flows from Financing Activities: Net proceeds of revolving credit 12,750 500 Repayment of term loans and capitalized lease obligations (426) (1,866) Proceeds from common stock issuances 42 12 - ---------------------------------------------------------------------------------------------------------- Cash provided by (used in) financing activities 12,366 (1,354) - ---------------------------------------------------------------------------------------------------------- Net Increase in Cash and Cash Equivalents 119 877 Cash and Cash Equivalents, Beginning of Period 915 1,601 - ---------------------------------------------------------------------------------------------------------- Cash and Cash Equivalents, End of Period $1,034 $2,478 - ---------------------------------------------------------------------------------------------------------- Supplemental Cash Flow Information Cash paid for interest expense $ 1,493 $ 834 Cash paid for income taxes $ 1,521 $ 32
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 27, 1999 AND MARCH 28, 1998 (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 27, 1999 are not necessarily indicative of the results that may be expected for the fiscal year ending December 25, 1999. 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 26, 1998. 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 27, December 26, (in thousands) 1999 1998 - ----------------------------------------------------- Bulk product $29,572 $31,181 Finished product 43,847 31,445 Packaging materials 5,833 5,775 - ----------------------------------------------------- Total $79,252 $68,401 - ----------------------------------------------------- 3. Intangible Assets Intangible assets consist primarily of goodwill which is amortized over a period of 40 years. Total accumulated amortization as of March 27, 1999 and March 28, 1998 was $4.8 million and $3.3 million, respectively. Amortization expense of these assets was $0.4 million and $0.3 million in the first quarter of 1999 and 1998, respectively. 4. Earnings Per Share Earnings Per share is computed under Statement of Financial Accounting Standards No. 128, "Earnings Per Share;" The Company has included basic and diluted earnings per share on the face of the Statements of Income for each period presented. Weighted average shares for "diluted" earnings per share includes the assumption of the exercise of all potentially dilutive securities ("in the money" 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 Company may experience significant fluctuations from quarter to quarter in its results of operations due to the timing of orders placed by the Company's customers. Generally, the second and third quarters have the highest level of customer orders, but the introduction of new products and product lines to customers may cause significant fluctuations from quarter to quarter. In January of 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 global distributor of replacement automotive parts, primarily Volvo and Saab. In September 1998, the Company began its acquisition of selective assets of the Service Line Division ("Champ") of Standard Motor Products, Inc. Champ includes the Champ Service Line, Pik-A-Nut and Everco. The acquisition was completed in stages with the final stage (Everco) occurring in January 1999. In October 1998, the Company acquired the assets of Allparts, Inc. Headquartered in Louisiana, Missouri, Allparts is a leading supplier of automotive hydraulic brake parts to the automotive aftermarket. 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 27, March 28, 1999 1998 - ----------------------------------------------------------------------------------------------- Net sales 100.0% 100.0% Cost of goods sold 61.3 61.5 - ----------------------------------------------------------------------------------------------- Gross profit 38.7 38.5 Selling, general and administrative expenses 32.0 31.4 - ----------------------------------------------------------------------------------------------- Income from operations 6.7 7.1 Interest expense, net 3.0 2.4 - ----------------------------------------------------------------------------------------------- Income before taxes 3.7 4.7 Provision for taxes 1.3 1.7 - ----------------------------------------------------------------------------------------------- Net Income 2.4% 3.0% - -----------------------------------------------------------------------------------------------
Thirteen Weeks Ended March 27, 1999 Compared to Thirteen Weeks Ended March 28, 1998 Net sales increased to $55.9 million for the thirteen weeks ended March 27, 1999 from $39.0 million for the same period in 1998, an increase of 43.4%. The increase resulted from increased sales in all segments of our core business and from recent acquisitions. Cost of goods sold for the thirteen weeks ended March 27, 1999 increased to $34.3 million from $24.0 million for the same period in 1998, an increase of 42.8%. As a percent of net sales, cost of goods sold for the thirteen weeks ended March 27, 1999 decreased to 61.3% from 61.5% for the thirteen weeks ended March 27, 1998. This improvement resulted primarily from a reduction in the material cost component of cost of goods sold. Selling, general and administrative expenses for the thirteen weeks ended March 27, 1999 increased to $17.9 million from $12.2 million for the thirteen weeks ended March 28, 1998, an increase of 46.3%. As a percent of net sales, selling, general and administrative expenses increased to 32.0% from 31.4%. This increase resulted primarily from increased labor and freight costs associated with shipments of products to customers. Interest expense, net, increased to $1.7 million for the thirteen weeks ended March 27, 1999 from $0.9 million for the thirteen weeks ended March 28, 1998. This increase resulted from higher average debt levels in the first quarter of 1999 relating to the funding of acquisitions made by the Company during 1998 and the expansion in working capital assets. A provision for income taxes of $0.7 million was recorded for the thirteen weeks ended March 27, 1999 and March 28, 1998. The decrease in the Company's effective tax rate from 36.5% in 1998 to 35.0% in 1999 resulted primarily from lower foreign tax rates. Liquidity and Capital Resources The Company has financed its growth through the combination of cash flow from its operations, issuance of senior notes and borrowings under its credit facilities. Working capital was $111.9 million as of March 27, 1999 and $59.0 million as of March 28, 1998. 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. Page 8 of 12 Net cash used in operating activities was $10.9 million for the thirteen weeks ended March 27, 1999 and net cash provided was $3.8 million for the thirteen weeks ended March 28, 1998. These amounts represent net income plus depreciation and amortization less changes in working capital. During 1999, the most significant changes were increases in inventories, accounts receivable and accounts payable. During 1998, the most significant changes were increases in inventories, accounts payable and other accrued liabilities. Net cash used in investing activities amounted to $1.4 million and $1.6 million for the thirteen weeks ended March 27, 1999 and March 28, 1998, respectively. In 1999, additions to plant and equipment accounted for the investing activities. In 1998, the acquisition of Scan-Tech and additions to property, plant and equipment accounted for the investing activities. Net cash provided by financing activities amounted to $12.4 million and net cash used was $1.4 million for the thirteen weeks ended March 27, 1999 and March 28, 1998, respectively. In 1999, borrowings under the line of credit accounted for the majority of the funds provided. In 1998, repayments of term loans and capitalized leases was partially offset by advances under the Company's revolving credit facility. The Acquisition of Scan-Tech. In January 1998, Scan-Tech was acquired with the payment of $1 million in cash, up to 350,000 shares of the Company's common stock and assumption of certain liabilities including approximately $0.8 million in bank debt. The Acquisition of Champ. In September 1998, the Company began its acquisition of selective assets of Champ from Standard Motor Products, Inc. for approximately $2.3 million representing the net asset value of inventories. The acquisition was completed in stages with the final stage (Everco) occurring in January 1999 and requiring a payment of approximately $0.3 million representing the net asset value of inventories. The Acquisition of Allparts. In October 1998, the Company acquired the assets of Allparts from JPE, Inc., for approximately $10.1 million in cash. Senior Notes. In August 1998, the Company completed a private placement of $60 million in 6.81% Senior Notes due August 21, 2008 on an unsecured basis. The ten-year Notes bear a 6.81 percent fixed interest rate, payable quarterly, with an initial four-year interest only period. Revolving Credit Facility. In connection with the Notes, the Company amended its $35 million revolving credit facility with First Union National Bank and National City Bank. As amended, the commitment for the line was extended for a five-year term on an unsecured basis with interest at Libor plus 75 basis points. Proceeds from the Notes were used, among other things, to paydown the term debt portions of the bank credit facilities previously advanced to the Company by the bank syndicate. Borrowings under the revolving credit facility amounted to $26.3 million at March 27, 1999 and to $13.5 million at December 26, 1998. 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 statements. In addition, in 1998 the Company entered into a sale/leaseback transaction relating to its new computer system in the amount of $4.3 million. Foreign Currency Fluctuations. Approximately 45% of the Company's products were 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. Page 9 of 12 Year 2000 Compliance The efficient operation of the Company's business is dependent in part on its computer software programs and operating systems ("Programs"). The Company has been evaluating its Programs to identify potential Year 2000 compliance problems. This evaluation has led to the selection and implementation of a comprehensive enterprise resource planning package and related programs ("New System"). This New System, installed in 1998, is used in several key areas of the company's business including inventory purchasing and management, production planning, forecasting, pricing, sales, shipping and financial reporting and replaces the majority of the Company's previous Programs. Those Programs not replaced by the New System are also being evaluated for Year 2000 compliance and appropriate adjustments have been or will be made to bring them into compliance either through modification or replacement. The most significant of these are the Company's Human Resource, payroll and time keeping systems which were replaced with a combination of purchased software and third party services during the first quarter of 1999. Based on present information, the Company believes that it will be able to achieve Year 2000 compliance through a combination of the New System and modification to other Programs, however, no assurance can be given that these efforts will be successful. The investment in capital expenditures to implement the New System and the Human Resources, payroll and time keeping systems was approximately $4.9 million and the Company estimates that the expenses associated with modification of other Programs will not be material. The Company maintains contingency plans for computer failures, power outages, natural disasters, etc. Year 2000 contingency plans for mission-critical systems are being developed and will be integrated with the existing plans where appropriate by December 1999. Further, in the event that any of the Company's significant suppliers or customers do not successfully and timely achi e Company's business operations could be adversely affected. 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. Cautionary Statement Regarding Forward Looking Statements Certain statements periodically made by or on behalf of the Company and certain statements contained herein including statements in Management's Discussion and Analysis of Financial Condition and Results of Operation; such as statements regarding litigation; and certain other statements contained herein regarding matters that are not historical fact are forward looking statements (as such term is defined in the Securities Act of 1933), and because such statements involve risks and uncertainties, actual results may differ materially from those expressed or implied by such forward looking statements. Factors that cause actual results to differ materially include but are not limited to those factors discussed in the Company's Annual Report on Form 10-K under "Business - Investment Considerations." Quantitative and Qualitative Disclosure about Material Risk The Company's market risk is the potential loss arising from adverse changes in interest rates. With the exception of the Company's revolving credit facility, long-term debt obligations are at fixed interest rates and denominated in U.S. dollars. The Company manages its interest rate risk by monitoring trends in interest rates as a basis for determining whether to enter into fixed rate or variable rate agreements. Market risk is estimated as the potential increase in fair value of the company's long- term debt obligations resulting from a hypothetical one-percent decrease in interest rates and amounts to approximately $3.6 million over the term of the debt. Although the company continues to evaluate derivative financial instruments to manage foreign currency exchange rate changes, the Company does not currently hold derivatives for managing these risks of for trading purposes. 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, 1999 \s\ Richard Berman Richard Berman President Date May 11, 1999 \s\ Malcolm Walter Malcolm Walter Chief Financial Officer and Principal Accounting Officer Page 12 of 12 EX-27 2 3/27/99 FINANCIALS
5 1,000 OTHER DEC-25-1999 DEC-26-1998 MAR-27-1999 1,034 0 68,046 (7,971) 79,252 143,466 40,487 (19,484) 199,850 31,549 92,754 0 0 83 72,950 199,850 55,946 55,946 34,261 17,901 0 0 1,706 2,078 727 1,351 0 0 0 1,351 0.16 0.16
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