- --------------------------------------------------------------------------------
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.
- --------------------------------------------------------------------------------
<PAGE>
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
<PAGE>
PART I. FINANCIAL INFORMATION
<TABLE>
R&B, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
<CAPTION>
For the Thirteen Weeks Ended
----------------------------
September 28, September 30,
(in thousands, except per share data) 1996 1995
- ------------------------------------------------------------------------------------------
<S> <C> <C>
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
==========================================================================================
</TABLE>
The accompanying Notes are an integral part of these Consolidated
Financial Statements.
Page 3 of 16
<PAGE>
<TABLE>
CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
<CAPTION>
For the Thirty-nine Weeks Ended
-----------------------------
September 28, September 30,
(in thousands, except per share data) 1996 1995
- -------------------------------------------------------------------------------------------
<S> <C> <C>
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
===========================================================================================
</TABLE>
The accompanying Notes are an integral part of these Consolidated
Financial Statements.
Page 4 of 16
<PAGE>
<TABLE>
CONSOLIDATED BALANCE SHEETS
<CAPTION>
September 28 December 30,
(in thousands, except share data) 1996 1995
- --------------------------------------------------- ----------------- -----------------
(unaudited)
<S> <C> <C>
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
=================================================== ================= =================
</TABLE>
The accompanying Notes are an integral part of these Consolidated Financial
Statements.
Page 5 of 16
<PAGE>
<TABLE>
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(unaudited)
<CAPTION>
Common Stock
-----------------------
Additional
Shares Par Paid-In Retained
(in thousands, except share data) Issued Value Capital Earnings Total
- ------------------------------------ ----------- ---------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
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
==================================== =========== ========== ============== ============== ==============
</TABLE>
The accompanying Notes are an integral part of these Consolidated
Financial Statements.
Page 6 of 16
<PAGE>
<TABLE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
<CAPTION>
For the Thirty-nine Weeks Ended
--------------------------------------
September 28, September 30,
(in thousands) 1996 1995
- -------------------------------------------------------------- ------------------ -------------------
<S> <C> <C>
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
</TABLE>
The accompanying Notes are an integral part of these Consolidated Financial
Statements.
Page 7 of 16
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
Results of Operations
<TABLE>
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.
<CAPTION>
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
- ----------------------- --------------- ---------------- ---------------- ------------------
<S> <C> <C> <C> <C>
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%
======================= =============== ================ ================ ==================
</TABLE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
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<FISCAL-YEAR-END> DEC-29-1996
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