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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
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|X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 27, 1997
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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Commission file number 0-18914
R&B, INC.
Incorporated pursuant to the Laws
of the Commonwealth of Pennsylvania
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IRS - Employer Identification No. 23-2078856
3400 East Walnut Street, Colmar, Pennsylvania 18915
(215) 997-1800
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Securities Registered pursuant to Section 12(b) of the Act: NONE
Securities Registered pursuant to Section 12(g) of the Act:
Common Stock, $0.01 Par Value
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Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days. Yes |X| No |_|
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K (ss.229.405 of this chapter) is not contained herein, and will
not be contained, to the best of Registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. |_|
As of March 20, 1998 the Registrant had 8,068,002 common shares, $.01 par value,
outstanding, and the aggregate market value of voting stock held by
non-affiliates of the Registrant was $43,081,005.
DOCUMENTS INCORPORATED BY REFERENCE
PART III - Certain information from the Registrant's definitive Proxy Statement
for its Annual Meeting of Shareholders presently scheduled to be held on May 14,
1998.
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<PAGE>
R & B, INC.
INDEX TO ANNUAL REPORT ON FORM 10-K
DECEMBER 27, 1997
Part I
Page
Item 1. Business. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
General. . . . . . . . .. . . . . . . . . . . . . . . . . . . 3
The Scan-Tech Transaction . . . . . . . . . . . . . . . . . . 3
The Automotive Aftermarket. . . . . . . . . . . . . . . . .. . 3
Products. . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Product Development. . . . . . . . . . . . . . . . . . . . . . 5
Sales and Marketing. . . . . . . . . . . . . . . . . . . . . . 6
Manufacturing. . . . . . . . . . . . . . . . . . . . . . . . . 7
Packaging, Inventory and Shipping. . . . . . . . . . . . . . . 7
Competition. . . . . . . . . . . . . . . . . . . . . . . . . . 8
Proprietary Rights. . . . . . . . . . . . . . . . . . . . . . 8
Employees. . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Scan-Tech. . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Investment Considerations. . . . . . . . . . . . . . . . . . . 8
Item 2. Properties. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Item 3. Legal Proceedings. . . . . . . . . . . . . . . . . . . . . . . . . .11
Item 4. Submission of Matters to a Vote of Security Holders. . . . . . . . .12
Item 4.1 Certain Executive Officers of the Registrant. . . . . . . . . . . . .12
Part II
Item 5. Market for Registrant's Common Equity and Related Shareholder Matters14
Item 6. Selected Financial Data. . . . . . . . . . . . . . . . . . . . . . . 14
Item 7. Management's Discussion and Analysis of Results of Operations and
Financial Condition.. . . . . . . . . . . . . . . . . . . . . . . 15
Item 8. Consolidated Financial Statements and Supplementary Data. . .. . . 20
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.. . . . . . . . . . . . . . . . . . . . . . . 36
Part III
Item 10. Directors and Executive Officers of the Registrant. . . . . . . . 36
Item 11. Executive Compensation. . . . . . . . . . . . . . . . . . . . . . 36
Item 12. Security Ownership of Certain Beneficial Owners and Management. . 36
Item 13. Certain Relationships and Related Transactions. . . . . . . . . . 37
Part IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K. . 37
Signatures. . . . . . . . . . . . . . . . . . . . . . . . . . 40
Report of Independent Public Accountants on Financial
Statement Schedule. .. . . . . . . . . . . . . . . . . . . . 41
Financial Statement Schedule. . . . . . . . . . . . . . . . . 42
Page 2 of 42
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PART I
Item 1. Business.
General
R&B, Inc. was incorporated in Pennsylvania in October 1978. As used
herein, unless the context otherwise requires, "R&B" or the "Company" refers to
R&B, Inc. and its subsidiaries.
The Company is a leading supplier of "hard-to-find" parts and fasteners
for the automotive aftermarket, a market segment which it helped to establish.
The Company designs, packages and markets over 30,000 different automotive
replacement parts and fasteners manufactured to its specifications, with
approximately half consisting of "hard-to-find" parts and fasteners.
"Hard-to-find" parts are those which were traditionally available to consumers
only from original equipment manufacturers or junk yards and include, among
other parts, window handles, headlamp aiming screws, power steering filler caps,
pedal pads and carburetor pre-heater hoses. Fasteners include such items as oil
drain plugs and wheel lug nuts. Approximately 78% of the Company's products are
sold under its brand names and the remainder are sold for resale under
customers' private labels, other brands or in bulk. The Company's products are
sold primarily in the United States through automotive aftermarket retailers
(such as AutoZone, The Pep Boys and Western Auto), national, regional and local
warehouse distributors (such as Auto Value, Carquest and NAPA) and parts and
automobile manufacturers or dealers for resale under their own private labels
(such as Moog and Raybestos).
The Scan-Tech Transaction
Effective as of January 1, 1998, the Company completed its acquisition
of all of the outstanding stock of Scan-Tech USA/Sweden, A.B. and Scan-Tech USA,
Ltd. and related tooling assets (collectively "Scan-Tech") pursuant to Stock and
Asset Purchase Agreements dated as of January 1, 1998. Scan-Tech, headquartered
in Stockholm, Sweden, distributes automotive replacement parts, primarily Saab
and Volvo, throughout Europe, the Middle East, the Far East and North America.
The Company acquired all of the operations of Scan-Tech and intends to continue
the operations in substantially the same form.
The Automotive Aftermarket
The automotive replacement parts market is made up of two components:
parts for passenger cars and light trucks, which accounted for sales of
approximately $67 billion in 1996, and parts for heavy duty trucks, which ac
counted for sales of approximately $26.5 billion in 1996. The Company currently
markets products primarily for passenger cars and light trucks.
Two distinct groups of end-users buy replacement automotive parts: (i)
individual consumers, who purchase parts to perform "do-it-yourself" repairs on
their own vehicles; and (ii) professional installers, which include automotive
repair shops and the service departments of automobile dealers. The individual
consumer market is typically supplied through retailers and through the retail
arms of warehouse distributors. Automotive repair shops generally purchase parts
through local independent parts wholesalers and through national warehouse
distributors. Automobile dealer service departments generally obtain parts
through the distribution systems of automobile manufacturers and specialized
national and regional warehouse distributors.
The increasing complexity of automobiles and the number of different
makes and models of automobiles have resulted in a significant increase in the
number of products required to service the domestic and foreign automotive
fleet. Accordingly, the number of parts required to be carried by retailers and
wholesale distributors has
Page 3 of 42
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increased substantially. These pressures to include more products in inventory
and the significant consolidation among distributors of automotive replacement
parts have in turn resulted in larger distributors.
Retailers and others who purchase aftermarket automotive repair and
replacement parts for resale are con strained in the short-term to a finite
amount of space in which to display and stock products. Thus, the reputation for
quality, customer service and line profitability which a supplier enjoys is a
significant factor in a purchaser's decision as to which product lines to carry
in the limited space available. Further, because of the efficiencies achieved
through the ability to order all or part of a complete line of products from one
supplier (with possible volume discounts), as opposed to satisfying the same
requirements through a variety of different sources, retailers and other
purchasers of automotive parts seek to purchase products from fewer but stronger
suppliers.
Products
The Company sells over 30,000 different automotive replacement parts and
fasteners to meet a variety of needs, including "hard-to-find" parts sold
primarily under the HELP!(R) brand name, a comprehensive array of fasteners for
use by commercial automotive repair facilities and sold under the Dorman(R) and
Service Supply!(R) brand names, and traditional automotive replacement parts
sold under the Company's other brand names as well as under customers' private
label brands. The Company markets these parts primarily through its Motormite
(R) and Dorman(R) divisions. Many of the Company's parts are sold under "dual
brands" in order to provide the Company's customers with an individualized
identity or to satisfy a particular brand preference. For example, a customer
could purchase a line of window handles under either the Motormite (R) HELP!(R)
brand or the Dorman (R) brand. Certain of the Company's brands, such as Metal
Work!TM, are offered as a single brand through both the Motormite (R) and Dorman
(R) divisions. Approximately 78% of the Company's revenues are derived from
products sold under its more than fifty brand names including, among others, the
following:
* HELP!(R) - An extensive array of replacement parts,
including window handles, knobs and
switches, door handles, control knobs, cigarette
lighters, interior trim parts, pedal pads, wheel
center caps, headlamp aiming screws and retainer
rings, license plate frames and parts, windshield
washer parts, hood latch release cables, radiator
parts, battery hold-down bolts, valve train parts,
spring U-bolts, tailgate cables, and power steering
filler caps
* Dorman (R) - An extensive array of replacement
parts, including many hard-to-find parts and
fasteners. The Dorman brand is designed to provide
the customer with a competitive brand alternative.
* Mighty Lift!(R) - Trunk, hood and hatchback lift supports and
component parts
* Steady Lift(R) - Trunk, hood and hatchback lift supports and
component parts
* Speedi-Boot!TM - Constant velocity joint boots and clamps
* Quick-Boot(R) - Constant velocity joint boots and clamps
* Mighty Flow!(R) - Air intake, carburetor preheater and defroster
duct hoses
* Start!TM - Alternator and starter repair components
* Look!(R) - Sideview mirror glass
Page 4 of 42
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* Clutch-In!TM - Clutch cables, bushings, forks and pilot tools
* Cable-All!TM - Accelerator, detent and transhift cables
* Gear-Up!(R) - Flywheels, ring gears and flex plates
* Cool-Aid!(R) - Air conditioning O-rings, gaskets, valves, tubes
and switches
* Strut-Tite!(R) - Strut mounts and related parts
* Conduct-Tite!(R) - Electrical connectors
* Oil-Tite!(R) - Oil drain plugs and gaskets
* Wheel-Tite!(R) - Wheel studs and lug nuts
* HPX(R) - High performance fasteners
* Metal Work!TM - A program of metal-working related
categories, including welding supplies and
accessories, cutting equipment and supplies,
abrasives and related tools and brushes for hand
and power applications
* SafetyXCounts!TM - Safety products relating to compliance items,
gear for personal protection and first aid
The remainder of the Company's revenues are generated by the sale of
parts packaged by the Company, or others, for sale in bulk or under the private
labels of parts manufacturers (such as Moog and Raybestos), national warehouse
distributors (such as NAPA) and automobile manufacturers or their dealers (such
as Ford's "Motorcraft" brand and General Motors' "AC/Delco" brand). During the
year ended December 1997, no single product or related group of products
accounted for more than 10% of gross sales. During the years ended December 1996
and 1995, the Company's Mighty Lift! and private label lines of lift supports
(which includes more than 200 different models) accounted for approximately 10%
and 11% of gross sales, respectively.
Product Development
Product development is central to the Company's business. The
development of a broad range of products, many of which are not conveniently or
economically available elsewhere, has in part, enabled the Company to grow to
its present size and is important to its future growth. In developing its
products, the Company's strategy has been to design and package its parts so as
to make them better and easier to install and/or use than the original parts
they replace and to sell automotive parts for the broadest possible range of
uses. Through careful evaluation, exacting design and precise tooling, the
Company is frequently able to offer products which fit a broader range of makes
and models than the original equipment parts they replace, such as an innovative
neoprene replacement oil drain plug which fits not only a variety of Chevrolet
models, but also Fords, Chryslers and a range of foreign makes. This assists
retailers and other purchasers in maximizing the productivity of the limited
space available for each class of part sold. Further, where possible, the
Company improves its parts so they are better than the parts they replace. Thus,
many of the Company's products are simpler to install or use, such as a
replacement "split boot" for a constant velocity joint that can be installed
without disassembling the joint itself and a replacement spare tire hold-down
bolt that is longer and easier to thread than the original equipment bolt it
replaced. In addition, the Company often packages different items in complete
kits to ease installation.
Page 5 of 42
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Ideas for expansion of the Company's product lines arise through a
variety of sources. The Company main tains an in-house engineering staff that
routinely generates ideas for new parts and expansion of existing lines. Fur
ther, the Company maintains an "800" telephone number and an Internet site for
"New Product Suggestions" and receives, either directly or through its sales
force, many ideas from the Company's customers as to which types of presently
unavailable parts the ultimate consumers are seeking.
Each new product idea is reviewed by the Company's engineering staff, as
well as by members of the production, sales, finance, marketing and
administrative staffs. In determining whether to produce an individual part or a
line of related parts, the Company considers the number of vehicles of a
particular model to which the part may be applied, the potential for
modifications which will allow the product to be used over a broad range of
makes and models, the average age of the vehicles in which the part would be
used and the failure rate of the part in question. This review process winnows
the many new product suggestions to those most likely to enhance the Company's
existing product lines or to support new product lines.
Sales and Marketing
The Company markets its parts to three groups of purchasers who in turn
supply individual consumers and professional installers:
(i) Approximately 47% of the Company's revenues are generated
from sales to automotive aftermarket retailers (such as AutoZone, The
Pep Boys and Western Auto), local independent parts wholesalers and
national general merchandise chain retailers. The Company sells some of
its products to virtually all major chains of automotive aftermarket
retailers;
(ii) Approximately 38% of the Company's revenues are generated
from sales to warehouse distributors (such as Auto Value, Carquest and
NAPA), which may be local, regional or national in scope, and which may
also engage in retail sales; and
(iii) The balance of the Company's revenues are generated from
sales to special markets, which include, among others, salvage yards,
automobile dealers and the parts distribution systems of parts and
automobile manufacturers (such as Moog and Raybestos).
The Company utilizes a number of different methods to sell its products.
The Company's approximately 100 person direct sales force solicits purchases of
the Company's products directly from customers, as well as managing the
activities of more than 15 independent manufacturer's representative agencies.
The Company uses an independent manufacturer's representative to help service
existing retail customers, providing frequent on-site contact. The sales focus
is designed to increase sales by adding new product lines and expanding product
selection within existing customers and secure new customers. For certain of its
major customers, and its private label purchasers, the Company relies primarily
upon the direct efforts of its sales force, who, together with the Company's
executive officers, coordinate the more complex pricing and ordering
requirements of these accounts.
The Company's sales efforts are not directed merely at selling
individual products, but rather more broadly towards selling groups of related
products that can be displayed on attractive Company-designed display systems,
thereby maximizing each customer's ability to present the Company's product line
within the confines of the available area.
The Company prepares a number of catalogs, application guides and
training materials designed to describe the Company's products and other
applications as well as to train the customers' salesmen in the promotion and
sale of the Company's products. Every two to three years the Company prepares a
new master catalog which lists all of its products. The catalog is updated
periodically through supplements.
Page 6 of 42
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The Company currently services approximately 10,000 active accounts.
During 1997, two customers (AutoZone and The Pep Boys), each accounted for 10%
or more of sales and in the aggregate accounted for 24% of sales. During 1996
and 1995, one customer (AutoZone), who purchased more than 20 different product
lines representing over 2,000 parts from the Company, accounted for
approximately 14% of sales each year.
Manufacturing
Substantially all of the products sold by the Company are manufactured
to its specifications by third parties, although replacement sideview mirror
glass (sold under its Look! trademark), is manufactured by the Company through
its Accurate Manufactured Products division. Because numerous contract
manufacturers are available to manufacture its products, the Company is not
dependent upon the services of any one contract manufacturer or any small group
of them, so no one vendor supplies 10% or more of the Company's products. In
1997, as a percentage of the total dollar volume of purchases made by the
Company, approximately 60% of the Company's products were purchased from various
suppliers throughout the United States and approximately 40% of the Company's
products were purchased from a variety of foreign countries.
Once a new product has been developed, the Company's engineering
department produces detailed en gineering drawings and prototypes which are used
to solicit bids for manufacture from a variety of vendors in the United States
and abroad. After a vendor is selected, tooling for a production run is produced
by the vendor at the Company's expense. A pilot run of the product is produced
and subjected to rigorous testing by the Company's en gineering department and,
on occasion, by outside testing laboratories and facilities in order to evaluate
the precision of manufacture and the resiliency and structural integrity of the
materials used. If acceptable, the product then moves into full production.
Packaging, Inventory and Shipping
Finished products are received at one or more of the Company's
facilities, depending on the type of part. Samples of each shipment are tested
upon receipt. If cleared, these shipments of finished parts are logged into the
Company's computerized production tracking systems and staged for packaging.
The Company employs a variety of custom-designed packaging machines for
"blister packaging," in which individual parts are dropped into plastic
"blister" cups to which a preprinted card backing with appropriate graphics is
sealed, and for "skinning," in which parts are pre-positioned on a printed card
backing, over which a malleable plastic "skin" is laid and fixed by vacuum- and
heat-treatment processes. In either event, the printed card contains the
Company's label (or a private label), a part number, a universal packaging bar
code suitable for electronic scanning, a description of the part and appropriate
installation instructions. Products are also sold in bulk to automotive parts
manufacturers and packagers. Computerized tracking systems, mechanical counting
devices and experienced workers combine to assure that the proper variety and
number of parts meet the correct packaging and backing materials at the
appropriate places and times to produce the required quantities of finished
products.
Completed inventory is stocked in the warehouse portions of the
Company's facilities and is organized ac cording to historical popularity in
order to aid in retrieval for shipping. The Company strives to maintain a level
of inventory to adequately meet current customer order demand with additional
inventory to satisfy new customer orders and special programs. In the aggregate,
this has resulted in approximately a two month supply of its products, packaged
and readily available for shipment, and a three to four month supply of product
in finished bulk form ready for packaging.
The Company ships its products from all of its locations, either by
contract carrier, common carrier or parcel service. Products are generally
shipped to the customer's central warehouse for redistribution within their
network. In certain circumstances, at the request of the customer, the Company
ships directly to the customer's stores.
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Competition
The replacement automotive parts industry is highly competitive. Various
competitive factors affecting the automotive aftermarket are price, product
quality, breadth of product line, range of applications and customer serv ice.
Substantially all of the Company's products are subject to competition with
similar products manufactured by other manufacturers of aftermarket automotive
repair and replacement parts. Some of these competitors are divisions and
subsidiaries of companies much larger than the Company, and possess a longer
history of operations and greater financial and other resources than the
Company. Further, some of the Company's private label customers also compete
with the Company.
Proprietary Rights
While the Company takes steps to register its trademarks when possible,
it does not believe that trademark registration is generally important to its
business. Similarly, while the Company actively seeks patent protection for the
products and improvements which it develops, it does not believe that patent
protection is generally important to its business.
Employees
At December 27, 1997, the Company had 931 employees, of whom 865 were
employed full-time and 66 were employed part-time. Of these employees, 641 were
engaged in production, inventory, or quality control, 49 were involved in
engineering and product development, 144 were employed in sales and order entry,
and the remaining 97, including the Company's 9 executive officers, were devoted
to administration, finance and strategic planning.
No employee is covered by any collective bargaining agreement. The
Company considers its relations with its employees to be generally good.
Scan-Tech
The following describes the business of Scan-Tech, which was acquired by
the Company. Scan-Tech is now a wholly-owned subsidiary of the Company.
Scan-Tech is an international distributor of automotive replacement
parts, primarily Saab and Volvo, headquartered in Stockholm, Sweden. Scan-Tech
sells over 5,000 different parts, including suspension parts and engine and
transmission mounts throughout Europe, the Middle East, the Far East and North
America. Scan-Tech sources its products globally, with no one supplier
representing more than 10% of its purchases. Scan-Tech sells to over 300 active
customers, with no one customer accounting for more than 10% of sales.
At December 31, 1997, Scan-Tech had 21 employees. As a result of the
acquisition, the Company does not expect the number of employees to change
materially.
Investment Considerations
Increasing Service Life. Advancing technology and competitive pressures
have compelled original equipment automobile and parts manufacturers to use
parts with longer service lives, which are covered by longer and more
comprehensive warranties. This may have the effect of reducing demand for the
Company's products by delaying the onset of repair conditions requiring their
use.
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Competition for Shelf Space. Since the amount of space available to a
retailer and other purchasers of the Company's products is limited, the
Company's products compete with other automotive aftermarket products, some of
which are entirely dissimilar and otherwise non-competitive (such as car waxes
and engine oil), for shelf and floor space. No assurance can be given that
additional space will be available in a customers' stores to support expansion
of the number of products offered by the Company.
Concentration of Sales to Certain Customers. A significant percentage of
the Company's sales have been, and will continue to be, concentrated among a
relatively small number of customers. In 1997, the Company's two largest
customers (AutoZone and The Pep Boys) accounted for approximately 24% of the
Company's net sales. The Company anticipates that this concentration of sales
among customers will continue in the future. The loss of a significant customer
or a substantial decrease in sales to such a customer could have a material
adverse effect on the Company's sales and operating results. In 1997, Monroe
Auto Equipment Co. ("Monroe") began to manufacture or source directly a series
of products previously purchased from the Company, with a resulting reduction of
sales to the Company of approximately $5.0 million. See "Management's Discussion
and Analysis of Results of Operations and Financial Condition" and
"Business-Sales and Marketing."
Dependence on Senior Management. The success of the Company's business
will continue to be dependent upon Richard N. Berman, Chairman of the Board,
President and Chief Executive Officer and Steven L. Berman, Executive Vice
President, Secretary-Treasurer and Director. The loss of the services of one or
both of these individuals could have a material adverse effect on the Company's
business.
Dividend Policy. The Company does not intend to pay cash dividends for
the foreseeable future. Rather, the Company intends to retain its earnings, if
any, for the operation and expansion of the Company's business.
Control by Officers, Directors and Family Members. Richard N. Berman and
Steven L. Berman, who are officers and directors of the Company, their father,
Jordan S. Berman, and their brothers, Marc H. Berman and Fred B. Berman,
beneficially own approximately 48% of the outstanding Common Stock and are able
to elect the Board of Directors, determine the outcome of most corporate actions
requiring shareholder approval (including certain fundamental transactions) and
control the policies of the Company. A covenant in the Company's credit facility
provides that Richard N. Berman, Steven L. Berman, Jordan S. Berman, Marc H.
Berman and Fred B. Berman must maintain a 25% interest in the Company, and
maintain control as that term is defined in Rule 12b-2 of the Securities Act of
1934, as amended. See Note 5 of Notes to Consolidated Financial Statements.
Possible Environmental Liability. See "Legal Proceedings."
Page 9 of 42
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Item 2. Properties.
Facilities
The Company's principal offices are located on a 30 acre tract in
Colmar, Pennsylvania. The tract contains a 334,000 square foot building and two
adjoining buildings, which have an aggregate area of approximately 17,000 square
feet. Approximately 326,500 square feet of these three structures are used for
receiving, packaging, warehousing and shipping and approximately 24,500 square
feet are used for executive and administrative purposes. A 97,000 square foot
Company facility in Carrollton, Georgia also houses packaging production lines,
distribution facilities and a warehouse. Both the Pennsylvania and Georgia
facilities are leased by the Company from two partnerships (the "partnerships")
of which Richard N. Berman, President and Chief Executive Officer of the
Company, and Steven L. Berman, Executive Vice President of the Company, their
father, Jordan S. Berman, and their brothers, Marc H. Berman and Fred B. Berman,
are partners.
Under the lease for the Pennsylvania property, the Company paid rent of
$3.12 per square foot ($1.0 million per year) in 1997. Under the lease for the
Georgia property, the Company paid rent of $2.48 per square foot ($0.2 million
per year) in 1997. The rents payable on both the Pennsylvania and Georgia
properties will be adjusted on January 1 of each year to reflect annual changes
in the Consumer Price Index for All Urban Consumers - U.S. City Average, All
Items. In addition, the Company's revised lease for its Pennsylvania property
grants the lessor the right, exercisable at its option on January 1, 2000, to
increase the rent to an amount determined by an independent appraiser to be the
then fair market rent. The Pennsylvania lease provides that, after giving effect
to the foregoing adjustments, the rent payable for a given year will be reduced
if, and to the extent that, it exceeds the Company's pre-tax income (before
actual rent expense under the lease) for the preceding fiscal year; provided
that the rent will not be reduced below $0.6 million ($1.62 per square foot).
The leases for the Pennsylvania and Georgia properties are "net" leases, under
which the Company is responsible for all expenses attributable to the leased
properties (including maintenance and repair) and for the conduct of its
operations in compliance with all applicable laws and regulations. The Company's
lease for its Pennsylvania property provides that, as between the Company and
the related partnership lessor, the lessor and its partners will bear any
environmental liability and all related expenses, including legal expenses,
incurred by the Company or the lessor as a result of matters which arose other
than from activities of the Company (although for any environmental liability
arising from the Company's activities, the Company will bear all such liability
and any related expenses, including legal expenses, incurred by the Company or
the lessor). The Pennsylvania lease will expire on December 28, 2002, and the
Georgia lease will expire on January 2, 2005. In the opinion of management, the
terms of these leases are no less favorable than those which could have been
obtained from an unaffiliated party.
The Pennsylvania property is being purchased by the partnerships from
the Montgomery County Industrial Development Corporation ("MCIDC") under an
installment sale agreement. MCIDC has, in turn, borrowed ap proximately
$1,971,000 from CoreStates Bank, N.A. ("CoreStates") and approximately
$1,161,000 from the Pen nsylvania Industrial Development Authority ("PIDA") to
fund in full its purchase and development of the Pennsyl vania property. The
partnerships' payments to MCIDC under the installment sale agreement are
required to be at least equal to the principal and interest payable by MCIDC
under these two loans, and the Company's rental pay ments on the Pennsylvania
property are required to be at least equal to the partnership's payments under
the install ment sale agreement with MCIDC. The Company has guaranteed the
obligations of the partnerships and MCIDC to CoreStates and of MCIDC to PIDA.
Under the provisions of the agreement pursuant to which the partnerships
acquired the Colmar property, the partnerships may be required to indemnify the
seller of that property for environmental liabilities which existed at the time
of the sale.
A third Company facility, located on a 23 acre tract in Warsaw,
Kentucky, is a 185,000 square foot office building and warehouse. Approximately
160,000 square feet of this structure is used for receiving, packaging,
warehousing and shipping and approximately 25,000 square feet is used for sales
and administrative purposes. An approximately 100,000 square foot expansion was
completed in April 1996. The Kentucky facility is being purchased, pursuant to a
lease purchase agreement, from the City of Warsaw, Kentucky (the "City"). The
City's
Page 10 of 42
<PAGE>
acquisition of the fee interest and building construction was financed with
$6,500,000 Floating/Fixed Rate Industrial Building Revenue Bonds, Series 1988
(SDI Operating Partners L.P. Project) (the "Bonds"). Under the lease agreement
for the Kentucky property, the Company pays interest monthly on the Bonds at a
floating rate, and makes a monthly "sinking fund" payment to cover the annual
principal payment of $300,000 or $350,000 in alternating years, with the final
payment due in July, 2009. In 1997 the Company paid $300,000 in principal and
$160,000 in interest under the Bonds.
A fourth Company facility, located in Elbow Lake, Minnesota is a 18,000
square foot office and warehouse facility. The building and five acre tract is
owned by the Company.
A fifth Company facility is a 32,000 square foot office and warehouse
facility located in Jessup, Maryland. The Maryland facility is occupied pursuant
to a written lease which expires in November 1998, but includes an option,
exercisable by the Company, to renew for an additional five year term.
A sixth facility, located in Cape Canaveral, Florida, is a 5,000 square
foot facility, used primarily for telemarketing. The Florida facility is
occupied on a month-to-month basis under a written lease agreement.
Scan-Tech Facilities
Scan-Tech's principal office and warehouse is a 14,500 square foot
facility located in a suburb of Stockholm, Sweden. The Stockholm facility is
occupied pursuant to a written lease which expires in September, 1999.
A second facility, located in Alexandria, Minnesota, is a 4,500 square
foot warehouse and office facility. The Minnesota facility is occupied pursuant
to a written lease which expires in September 1998.
Item 3. 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.
The Company's primary operating facility in Colmar, Pennsylvania, which
is leased from the partnership, is located within an area identified by the
Environmental Protection Agency ("EPA") as a possible source or location of
volatile organic chemical contamination. In November 1990, the EPA sent a
general notice letter to certain present and former owners and operators of
properties within this area, informing them that they may be liable under the
Comprehensive Environmental Response, Compensation and Liability Act with
respect to this contamination. As a current operator of the Colmar property, the
Company received such a general notice letter. The Company may be deemed jointly
and severally liable, together with all other potentially responsible parties,
for (i) the costs of performing a study of the nature and extent of the
contamination and the possible alternatives for remediation, if any, as well as
(ii) the costs of effectuating that remediation. The Company's operations do not
generally have, and have not generally had, an adverse impact upon the
environment or produce or use the materials of environmental concern that caused
the contamination being investigated by the EPA and the Company believes that
its Colmar site has not historically been a source of such contamination,
although the Company has been told that such material may have been used in
limited quantities by a prior operator of the facility. The Company's lease for
its Colmar facility provides that, as between the Company and the related
partnership lessor, the lessor and its partners will bear any environmental
liability and all related expenses, including legal expenses, incurred by the
Company or the lessor as a result of the presence of hazardous substances at the
facility (although for any environmental liability arising from the Company's
activities, the Company will bear all such liability and any related expenses,
including legal expenses, incurred by the Company or the lessor).
Page 11 of 42
<PAGE>
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 4. Submission of Matters to a Vote of Security Holders.
There were no matters submitted to a vote of the security holders of the
Company during the fourth quarter of fiscal year 1997.
Item 4.1 Certain Executive Officers of the Registrant.
The following table sets forth certain information with respect to the
executive officers of the Company:
Name Age Position with the Company
Richard N. Berman 41 President, Chief Executive Officer, Chairman of the
Board of Directors, and Director
Steven L. Berman 38 Executive Vice President, Secretary-Treasurer, and
Director
Edward L. Dean 41 Vice President, Marketing and Engineering
David A. Eustice 37 Chief Operating Officer
Kenneth W. Husband 41 Vice President, Purchasing
Ronald R. Montgomery 56 Vice President, Sales
Barry D. Myers 38 Vice President, General Counsel and Assistant
Secretary
Ken W. Parman 36 Vice President, Sales - R&B Automotive
Malcolm S. Walter 44 Chief Financial and Accounting Officer
Richard N. Berman has been President, Chief Executive Officer and a
Director of the Company since its inception in October 1978. He is a graduate of
the University of Pennsylvania.
Steven L. Berman has been Executive Vice-President, Secretary-Treasurer
and a Director of the Company since its inception.He attended Temple University.
Page 12 of 42
<PAGE>
Edward L. Dean joined the Company in November 1997 as Vice President,
Marketing. Prior to joining the Company Mr. Dean was the Vice President of Sales
with Angelo Brothers Co., a lighting products company. He is a graduate of The
State University of New York at Buffalo.
David A. Eustice joined the Company in December 1996 as Vice President,
Operations and was named Chief Operating Officer in January 1998. Prior to
joining the Company Mr. Eustice was the Vice President of Operations with the
Baldwin Hardware Division of Masco Corporation. Baldwin is a high end
manufacturer and international distributor of architectural hardware. From
August 1990 to January 1994, Mr. Eustice was a Senior Project Manager for USC
Consulting, a operational improvement firm. While with USC Consulting, Mr.
Eustice consulted to clients including IBM, Copper Industries, PPG Industries
and Masco Corporation. He is a graduate of The State University of New York at
Buffalo.
Kenneth W. Husband has been an employee of the Company since January
1980, and has been Vice President, Purchasing for more than five years. He is a
graduate of The Pennsylvania State University.
Ronald R. Montgomery joined the Company in June 1997 as Vice President,
Sales. Prior to joining the Company Mr. Montgomery was Senior Vice President,
Sales for the Coleman Company, responsible for North American sales in the
outdoor and camping equipment division. From December 1979 to October 1995, Mr.
Montgomery held various senior sales positions with Black & Decker, Inc. He is a
graduate of Miami University (Ohio).
Barry D. Myers has been an employee of the Company since March 1988, and
has been Vice President, General Counsel and Assistant Secretary for more than
five years. He is a graduate of Moravian College and Syracuse University College
of Law, and is a member of the Pennsylvania Bar.
Kenneth W. Parman has been an employee of the Company for more than five
years, and has been Vice President, Sales - R&B Automotive since February 1996.
He is a graduate of the University of Toledo.
Malcolm S. Walter joined the Company in January 1996 as the Chief
Financial Officer. Prior to joining the Company, Mr. Walter was a principal of
Malcolm S. Walter & Associates, a management consulting firm, which provides
assistance in financing, strategic planning, and budgeting. From August 1994 to
July 1995, Mr. Walter was the President and founder of iTravel, a developer of
CD-ROM products for the leisure travel industry. Prior to August 1994, Mr.
Walter was Chief Financial Officer and then General Manager of the Multimedia
division, of Ensoniq, a computer hardware company. He is a graduate of the
Wharton School and is a Certified Public Accountant.
Page 13 of 42
<PAGE>
PART II
Item 5. Market for Registrant's Common Equity and Related Shareholder Matters.
The Company's shares of common stock are traded publicly in the
over-the-counter market under the NASDAQ system. At March 20, 1998, there were
100 holders of record of common stock, representing more than 2,000 beneficial
owners. The last price for the Company's common stock on March 20, 1998, as
reported by NASDAQ, was $10.56 per share. Since the Company's initial public
offering, it has paid no cash dividends. The Company does not presently
contemplate paying any such dividends in the foreseeable future. The range of
high and low sales price for the Company's common stock for each quarterly
period of 1997 and 1996 are as follows:
1997 1996
------------------------ -----------------------
High Low High Low
- ------------------ ----------- ------------ ---------- ------------
First Quarter $8.38 $7.13 $7.38 $5.88
Second Quarter 8.25 7.25 7.63 5.38
Third Quarter 9.13 7.88 8.25 6.25
Fourth Quarter 10.25 8.58 8.50 7.00
Item 6. Selected Financial Data.
<TABLE>
Selected Consolidated Financial Data
<CAPTION>
Year Ended December
-------------------------------------------------------------------------
(in thousands, except per share data1997 1996 1995 1994 1993
- ----------------------------- -------------- ------------ -------------- --------------- -------------
<S> <C> <C> <C> <C> <C>
Income Statement Data:
Net sales $153,046 $146,952 $113,826 $65,792 $62,342
Income from operations 14,784 13,244 10,455 5,597 7,745
5,5973
Net income 6,714 5,662 4,433 3,226 4,525
Basic and diluted earnings per 0.83 0.71 0.56 0.41 0.65
share
Balance Sheet Data:
Total assets 128,707 128,970 106,475 52,437 47,368
Working capital 58,609 63,368 51,559 38,940 36,701
Long-term debt 44,336 56,248 46,629 3,202 3,444
Shareholders' equity 61,162 54,169 48,221 43,638 40,268
</TABLE>
Page 14 of 42
<PAGE>
Item 7. Management's Discussion and Analysis of Results of Operations and
Financial Condition.
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.
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, located in Elbow Lake, Minnesota.
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.
The Company operates on a fifty-two, fifty-three week period ending on
the last Saturday of the calendar year.
Page 15 of 42
<PAGE>
Results of Operations
The following table sets forth, for the periods indicated, the percentage
of net sales represented by cer tain items in the Company's Consolidated
Statements of Income.
<TABLE>
<CAPTION>
Percentage of Net Sales
-------------------------------------------------------
Year Ended
-------------------------------------------------------
December 27, December 28, December 30,
1997 1996 1995
- --------------------------- ------------------ ---------------- -------------------
<S> <C> <C> <C>
Net sales 100.0% 100.0% 100.0%
Cost of goods sold 60.8 61.9 61.2
- --------------------------- ------------------ ---------------- -------------------
Gross profit 39.2 38.1 38.8
Selling, general and
administrative expenses 29.6 29.1 29.6
- --------------------------- ------------------ ---------------- -------------------
Income from operations 9.6 9.0 9.2
Interest expense, net 2.7 2.9 3.2
- --------------------------- ------------------ ---------------- -------------------
Income before taxes 6.9 6.1 6.0
Provision for taxes 2.5 2.2 2.1
- --------------------------- ------------------ ---------------- -------------------
Net income 4.4% 3.9% 3.9%
=========================== ================== ================ ===================
</TABLE>
1997 Compared to 1996
Net sales increased to $153.0 million in 1997 from $147.0 million in
1996, an increase of 4.1%. This increase resulted from an $8.0 million increase
in core business sales due to increased product line penetration with existing
customers and a $3.0 million increase in sales at MPI due largely to new
products, offset by the loss of $5.0 million in sales to Monroe Equipment Co.
who, in 1997, began to manufacture or source directly a series of products
previously purchased from the Company.
Cost of goods sold increased to $93.0 million in 1997 from $90.9 million
in 1996, an increase of 2.4%. As a percentage of net sales, cost of goods sold
decreased in 1997 to 60.8% from 61.9% in 1996. This improvement resulted
primarily from a reduction in the labor content of the Company's products due to
improved efficiency and productivity.
Selling, general and administrative expenses for 1997 increased to $45.2
million from $42.8 million in 1996, an increase of 5.6%. As a percentage of net
sales, selling, general and administrative expenses increased in 1997 to 29.6%
from 29.1% in 1996. This increase was the result of approximately: $1.8 million
in salaries and related benefits due to the Company's annual increase in wages,
the hiring of three vice presidents to complete the management team, and an
increase in medical benefits; $0.4 million or 8.0% increase in MPI's expenses
compared to a sales increase of 16.1%; and $0.4 million increase in consulting
fees primarily associated with the operational productivity improvement project.
Interest expense, net, decreased to $4.2 million in 1997 from $4.3
million in 1996. This decrease resulted from the debt repayments during 1997.
A provision for income taxes was recorded in 1997 of $3.9 million and
$3.3 million in 1996. The Company's effective tax rate was 36.5% in 1997 and
36.7% in 1996. This change reflects slightly lower effective state taxes due to
revenue shifts and asset allocations.
Page 16 of 42
<PAGE>
1996 Compared to 1995
Net sales increased to $147.0 million in 1996 from $113.8 million in
1995, an increase of 29.1%. This increase resulted primarily from increased
sales due to the MPI and Cosmos acquisitions as well as sales to the Company's
largest customers from both existing and new product lines.
Cost of goods sold for 1996 increased to $90.9 million from $69.7 million
for 1995, an increase of 30.4%. As a percentage of net sales, cost of goods sold
for 1996 increased to 61.9% from 61.2% for 1995. The increase was primarily due
to the acquisition of MPI which, as a distributor, achieves a lower margin.
Selling, general and administrative expenses for 1996 increased to $42.8
million from $33.7 million for 1995, an increase of 27.2%. This increase was the
result of approximately: $5.7 million representing the operating expenses of the
newly acquired businesses (MPI and Cosmos); $1.5 million attributable to
shipping labor and overhead costs; $0.9 million in selling expenses including
freight and catalog amortization; and $0.5 million in administrative expenses
including professional fees.
Interest expense, net, increased to $4.3 million for 1996 from $3.6 million
for 1995. This increase was the result of additional interest expense on
borrowings used to acquire MPI and Cosmos.
A provision for income taxes of $3.3 million was recorded for 1996 and $2.4
million was recorded for 1995. The Company's effective tax rate was 36.7% for
1996 and 35.5% for 1995. The increase in the effective tax rate is primarily the
result of higher state taxes.
Net income increased $1.3 million, or 27.7% to $5.7 million for 1996 from
$4.4 million for 1995. As a percentage of net sales, net income remained
unchanged at 3.9%.
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 $58.6 million as of December 27, 1997 and $63.4 million as
of December 28, 1996. The Company believes that 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 (see also Note 12).
Net cash provided by operating activities was $16.3 million in 1997 and $2.6
million in 1995 while net cash used in operating activities amounted to $1.9
million in 1996. These amounts represent net income plus depreciation and
amortization less changes in working capital. During 1997, net income plus
non-cash charges generated $13.9 million of operating cash flow which was
increased by $2.4 million resulting from a $3.4 million reduction in inventories
and a $3.2 million increase in accounts payable and other accrued liabilities
offset by an increase of $2.8 million in accounts receivable and $1.4 million in
prepaids and other assets. During 1996, net income plus non-cash charges
generated $9.9 million of operating cash flow which was reduced by a $11.8
million use of cash as a result of working capital increases necessary to
support the increase in sales. For 1995, cash generated from net income and
non-cash charges was offset by increased working capital needs, the most
significant of which was for inventories.
Net cash used in investing activities amounted to $4.5 million, $9.0 million,
and $43.5 million in 1997, 1996 and 1995, respectively. In 1997, these funds
were used to purchase computer equipment, machinery, packaging equipment and
tooling. In 1996, the largest part of the investing activities was $5.2 million
for the acquisition of MPI, with the balance represented by increased warehouse
space and equipment. In 1995, the acquisitions of Dorman and Cosmos for $41.8
million represented nearly all of the total investing activities.
Page 17 of 42
<PAGE>
Net cash used in financing activities amounted to $11.1 million in 1997 while
net cash provided by financing activities amounted to $10.5 million and $41.6
million for 1996 and 1995, respectively. In 1997 cash was used to reduce the
amounts outstanding under the Company's revolving credit facility and for
repayments of term debt and capital lease obligations. For 1996 and 1995, cash
was received from commercial borrowings under the Company's credit facility,
offset somewhat by the scheduled term debt payments and the continued paydown of
capitalized lease obligations.
The Acquisition of MPI. In 1996, 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.
The Acquisition of Dorman. In 1995, 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 against SDI for damages resulting from, among other things, an alleged
breach of various representations and warranties contained in the Asset Purchase
Agreement.
The Acquisition of Cosmos. In 1995, Cosmos was acquired with the payment of
cash consideration in the amount of approximately $3.6 million.
The Scan-Tech Transaction. 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 the 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
the 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.
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 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.
Page 18 of 42
<PAGE>
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 December 27, 1997, the Company had
borrowings of $26.0 million under the term loans and $18.5 million under the
revolving facility and has $16.5 million of borrowing capacity under the
revolving facility (see Note 5).
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.
Foreign Currency Fluctuations. In 1997, approximately 40% 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.
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") expected to be operational by the second quarter of 1998. This New
System will be 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 will replace the majority of the
Company's current 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.
Based on present information, the Company believes that it will be able to
achieve Year 2000 compliance through a combination of installation of the New
System and modification to other Programs, however, no assurance can be given
that these efforts will be successful. The Company expects that the investment
in capital expenditures to implement the New System will be approximately $3.5
million ($2.2 million incurred as of December 27, 1997) and that the expenses
associated with modification of other Programs will not be material.
Further, in the event that any of the Company's significant suppliers or
customers do not successfully and timely achieve Year 2000 compliance, the
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.
Page 19 of 42
<PAGE>
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; certain
statements contained in Business, 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
"Business - Investment Considerations."
Item 8. Financial Statements and Supplementary Data.
The financial statement schedules of the Company that are filed with this
Report on Form 10-K are listed in Item 14(a)(2), Part IV, of this Report.
Report of Independent Public Accountants
To R & B, Inc.:
We have audited the accompanying consolidated balance sheets of R&B, Inc. (a
Pennsylvania corporation) and subsidiaries as of December 27, 1997 and December
28, 1996 and the related consolidated statements of income, shareholders' equity
and cash flows for each of the three years in the period ended December 27,
1997. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of R&B, Inc. and
subsidiaries as of December 27, 1997 and December 28, 1996 and the consolidated
results of their operations and their cash flows for each of the three years in
the period ended December 27, 1997, in conformity with generally accepted
accounting principles.
Arthur Andersen LLP
Philadelphia, PA
February 19, 1998
Page 20 of 42
<PAGE>
<TABLE>
R&B, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<CAPTION>
For the Year Ended
----------------------------------------------
December 27, December 28, December 30,
(in thousands, except per share data) 1997 1996 1995
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net Sales $153,046 $146,952 $113,826
Cost of goods sold 93,032 90,892 69,713
- ---------------------------------------------------------------------------------------
Gross profit 60,014 56,060 44,113
Selling, general and administrative expenses 45,230 42,816 33,658
- ---------------------------------------------------------------------------------------
Income from operations 14,784 13,244 10,455
Interest expense, net 4,205 4,305 3,580
- ---------------------------------------------------------------------------------------
Income before taxes 10,579 8,939 6,875
Provision for taxes 3,865 3,277 2,442
- ---------------------------------------------------------------------------------------
Net Income $ 6,714 $ 5,662 $ 4,433
=======================================================================================
Basic and Diluted Earnings Per Share $ 0.83 $ 0.71 $ 0.56
=======================================================================================
Average Shares Outstanding 8,043 7,997 7,978
=======================================================================================
</TABLE>
The accompanying Notes are an integral part of these Consolidated Financial
Statements.
Page 21 of 42
<PAGE>
<TABLE>
R&B, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<CAPTION>
December 27, December 28,
(in thousands, except share data) 1997 1996
- --------------------------------------------------- ----------------- -----------------
<S> <C> <C>
Assets
Current Assets:
Cash and cash equivalents $ 1,601 $ 923
Accounts receivable, less allowance for doubtful
accounts and customer credits of $7,214 and $11,305 37,536 35,134
Inventories 38,264 41,652
Deferred income taxes 1,186 2,748
Prepaids and other current assets 1,461 606
- --------------------------------------------------- ----------------- -----------------
Total current assets 80,048 81,063
- --------------------------------------------------- ----------------- -----------------
Property, Plant and Equipment, net 16,382 14,567
Intangible Assets 29,747 30,850
Other Assets 2,530 2,490
- --------------------------------------------------- ----------------- -----------------
Total $128,707 $128,970
=================================================== ================= =================
Liabilities and Shareholders' Equity
Current Liabilities:
Current portion of long-term debt $ 6,611 $ 6,066
Accounts payable 8,982 7,146
Accrued compensation 2,923 2,220
Other accrued liabilities 2,923 2,263
- --------------------------------------------------- ----------------- -----------------
Total current liabilities 21,439 17,695
Long-Term Debt 44,336 56,248
Deferred Income Taxes 1,770 858
Commitments and Contingencies (Note 10)
Shareholders' Equity:
Common stock, par value $.01; authorized
25,000,000 shares; issued 8,066,543 and 8,026,254 81 80
Additional paid-in capital 30,221 29,943
Retained earnings 30,860 24,146
Total shareholders' equity 61,162 54,169
- --------------------------------------------------- ----------------- -----------------
Total $128,707 $128,970
=================================================== ================= =================
</TABLE>
The accompanying Notes are an integral part of these Consolidated Financial
Statements.
Page 22 of 42
<PAGE>
<TABLE>
R&B, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<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> <C> <C>
Balance at December 31, 1994 7,958,478 $80 $29,507 $14,051 $43,638
Common stock issued to
Employee Stock Purchase Plan 710 - 4 - 4
Common stock issued to
401(k) Retirement Plan 23,373 - 146 - 146
Net income - - - 4,433 4,433
Balance at December 30, 1995 7,982,561 80 29,657 18,484 48,221
Common stock issued to
Employee Stock Purchase Plan 604 - 3 - 3
Common stock issued to
401(k) Retirement Plan 39,464 - 261 - 261
Shares issued under 3,625 - 22 - 22
Incentive Stock Plan
Net income - - - 5,662 5,662
Balance at December 28, 1996 8,026,254 80 29,943 24,146 54,169
Common stock issued to
Employee Stock Purchase Plan 717 - 1 - 1
Common stock issued to
401(k) Retirement Plan 39,377 1 277 - 278
Shares issued under
Incentive Stock Plan 195 - - - -
Net income - - - 6,714 6,714
Balance at December 27, 1997 8,066,543110 $81 $30,221 $30,860 $61,162
==================================== =========== ========== ============== ============== ==============
</TABLE>
The accompanying Notes are an integral part of these Consolidated Financial
Statements.
Page 23 of 42
<PAGE>
<TABLE>
R&B, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<CAPTION>
For the Year Ended
-------------------------------------------------
December 27, December 28, December 30,
(in thousands) 1997 1996 1995
- -------------------------------------------------------- ---------------- --------------- ----------------
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net income $6,714 $5,662 $4,433
Adjustments to reconcile net income to cash provided by
(used in)operating activities:
Depreciation and amortization 4,258 4,422 3,806
Provision for doubtful accounts 417 519 467
Provision for deferred income tax 2,474 (715) (462)
Changes in assets and liabilities, net of acquisitions:
Accounts receivable (2,819) (11,081) 190
Inventories 3,388 (3,758) (4,145)
Prepaids and other current assets (855) 991 (171)
Other assets (499) (484) (985)
Accounts payable 1,836 1,760 (1,880)
Other accrued liabilities 1,363 811 1,396
- -------------------------------------------------------- ---------------- --------------- ----------------
Cash provided by (used in) operating activities 16,277 (1,873) 2,649
- -------------------------------------------------------- ---------------- --------------- ----------------
Cash Flows from Investing Activities:
Property, plant and equipment additions (4,511) (3,766) (2,218)
Short-term investments - - 600
Business acquisitions - (5,228) (41,835)
- -------------------------------------------------------- ---------------- --------------- ----------------
Cash used in investing activities (4,511) (8,994) (43,453)
- -------------------------------------------------------- ---------------- --------------- ----------------
Cash Flows from Financing Activities:
Net repayment or proceeds from revolving credit (5,350) 5,300 18,550
Proceeds from term loans - 12,000 25,000
Repayment of term loans and capitalized lease obligations (6,017) (7,043) (2,071)
Proceeds from common stock issuances 279 286 150
- -------------------------------------------------------- ---------------- --------------- ----------------
Cash (used in) provided by financing activities (11,088) 10,543 41,629
- -------------------------------------------------------- ---------------- --------------- ----------------
Net Increase (Decrease) in Cash and Cash Equivalents 678 (324) 825
Cash and Cash Equivalents, Beginning of Year 923 1,247 422
- -------------------------------------------------------- ---------------- --------------- ----------------
Cash and Cash Equivalents, End of Year $ 1,601 $ 923 $ 1,247
======================================================== ================ =============== ================
Supplemental Cash Flow Information
Cash paid for interest expense $3,627 $3,740 $3,376
Cash paid for income taxes $3,068 $3,702 $3,269
</TABLE>
The accompanying Notes are an integral part of these Consolidated Financial
Statements.
Page 24 of 42
<PAGE>
R&B, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 27, 1997
1. Summary of Significant Accounting Policies
R&B, Inc. (the "Company") is principally engaged in the business of
selling a broad range of "hard-to-find" replacement auto parts and fasteners for
the automotive aftermarket to retailers, wholesalers and others for use in the
repair and maintenance of automobiles and trucks.
The Company operates on a fifty-two, fifty-three week period ending on
the last Saturday of the calendar year.
Principles of Consolidation - The consolidated financial statements
include the accounts of the Company and its wholly-owned subsidiaries. All
material intercompany accounts and transactions have been eliminated in
consolidation.
Use of Estimates in the Preparation of Financial Statements - The
preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Statements of Cash Flows - The Company considers all highly liquid debt
instruments with original maturities of three months or less to be cash
equivalents.
Inventories - Inventories are stated at the lower of average cost or
market.
Property and Depreciation - Property, plant and equipment are recorded
at cost and depreciated over their estimated useful lives, which range from
three to fifteen years, using the straight-line method for financial statement
reporting purposes and accelerated methods for income tax purposes. Properties
under capitalized leases are amortized over the related lease terms (15 years).
The costs of maintenance and repairs are expensed as incurred. Renewals and
betterments are capitalized.
Intangible Assets - The Company adopted Statement of Financial
Accounting Standards No. 121 (SFAS 121), "Accounting for the Impairment of
Long-lived Assets and Long-lived Assets to be Disposed Of" in 1995. In
connection with the adoption of SFAS 121, it is the Company's policy to review
goodwill and other intangible assets for possible impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may not
be recoverable. If such review indicates that the carrying amount of goodwill
and other intangible assets is not recoverable, it is the Company's policy to
reduce the carrying amount of such assets to fair value. The adoption of SFAS
121 had no impact on the Company's financial position or results of operations.
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 December
27, 1997, goodwill was $28.3 million, patents were $1.3 million and the
non-compete covenant was $0.2 million. Amortization of these assets was $1.1
million in 1997 and 1996, and $0.8 million in 1995.
Page 25 of 42
<PAGE>
Other Assets - Other assets consist of credits associated with certain
customer multi-year sales arrangements which are capitalized and amortized
against current and future sales; costs incurred for the preparation and
printing of product catalogs which are capitalized and amortized upon
distribution; and deferred financing costs which are capitalized and amortized
over the term of the related financing agreement.
Income Taxes - Income taxes include federal and state taxes with
deferred tax benefits and liabilities arising from temporary differences between
financial and tax reporting.
Revenue Recognition - The Company records sales when its products are
shipped. A provision is recorded for anticipated returns or allowances, based
primarily on historical experience and current estimates.
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.
Employee stock options had no impact on earnings per share.
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:
December 27, December 28,
(in thousands) 1997 1996
- --------------------- ----------------- -----------------
Bulk product $21,800 $19,365
Finished product 12,737 16,907
Packaging materials 3,727 5,380
- --------------------- ----------------- -----------------
Total $38,264 $41,652
===================== ================= =================
Page 26 of 42
<PAGE>
3. Property, Plant and Equipment
Property, plant and equipment consist of the following:
December 27, December 28,
(in thousands) 1997 1996
- ----------------------------------- ----------------- --- ----------------
Property under
capitalized leases $4,430 $4,430
Buildings 7,007 7,007
Machinery, equipment and
tooling 9,963 8,985
Furniture, fixtures and
leasehold improvements 1,646 1,418
Computer and other
office equipment 7,232 3,932
- ----------------------------------- ----------------- --- ----------------
Total 30,278 25,772
Less-accumulated depreciation (13,896) (11,205)
- ----------------------------------- ----------------- --- ----------------
Property, plant and equipment, net $16,382 $14,567
=================================== ================= === ================
4. Acquisitions
Dorman - In January 1995, the Company acquired the Dorman Products
Division of SDI Operating Partners, L.P.. Dorman is one of the nation's oldest
suppliers of automotive aftermarket parts and fasteners with annual sales in
1994 of approximately $37.0 million. The Company accounted for this acquisition
using the purchase method of accounting, which resulted in the recording of
goodwill of $26.3 million.
The acquisition was effected by 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 Industrial Revenue Bonds
("Bonds") used to finance the construction of Dorman's warehouse and office
facility. 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, a complaint has been filed against SDI for damages
resulting from, among other things, an alleged breach of various representations
and warranties contained in the Asset Purchase Agreement.
Cosmos - In August 1995, the Company acquired the outstanding common
stock of Cosmos International, Inc., a privately held supplier of protective
boots for the constant velocity joints on front-wheel drive vehicles, located
in Minnesota. 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.
MPI - In January 1996, the Compay 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. MPI was acquired with the payment of cash consideration in the amount
of
Page 27 of 42
<PAGE>
approximately $5.2 million and the assumption of certain liabilities, including
approximately $2.3 million in the assumption of bank debt. The Company accounted
for this acquisition using the purchase method of accounting which resulted in
the recording of goodwill of $3.9 million.
5. Long-Term Debt
Long-term debt consists of borrowings under bank credit facilities,
industrial revenue bonds and capitalized lease obligations as follows:
December 27, December 28,
(in thousands) 1997 1996
- --------------------------------- ------------------- -------------------
Bank credit facility -
1995 Term Loan $18,000 $21,000
1996 Term Loan 8,000 10,400
Revolving credit 18,500 23,850
Industrial revenue bonds 3,836 4,138
Capitalized lease obligations 2,611 2,926
- --------------------------------- ------------------- -------------------
Total 50,947 62,314
Less: Current portion (6,611) (6,066)
- --------------------------------- ------------------- -------------------
Total long-term debt $44,336 $56,248
================================= =================== ===================
Bank Credit Facility - 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 $0.2 million.
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.
Page 28 of 42
<PAGE>
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 assets,
including accounts receivable, inventory and all other tangible or intangible
property.
The term loan agreement, as amended, requires that the original
shareholders must maintain at least 25% ownership of the Company and maintain
control as that term is defined in Rule 12b-2 of the Securities Act of 1934, as
amended, as well as meet certain financial covenants such as minimum tangible
net worth and minimum debt to lease payment service rates.
The average amount outstanding was $50.0 million and $52.8 million during
1997 and 1996, respectively. The maximum outstanding during 1997 was $58.4
million and $60.5 million during 1996.
Industrial Revenue Bonds - In connection with the acquisition of Dorman,
the Company assumed certain liabilities, including balances outstanding under
Industrial Revenue Bonds (see Note 4). 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. The
Bonds are secured by the Company's warehouse and office facility in Warsaw,
Kentucky.
Capitalized Lease Obligations - The Company's capitalized lease obligation
for its primary operating facility is with a partnership related to the Company
by common ownership ( "Partnership 1") (see Note 7) and is payable monthly in
installments of $47,500 including interest imputed at 13.96% through December
2002. The lease provides for contingent rental payments to Partnership 1 in
amounts that, when added to the annual capitalized lease payments, do not exceed
the fair market rental rate of the facility. The contingent rental payments are
determined on an annual basis to approximate the change in the Consumer Price
Index and are payable only to the extent that the Company has available
sufficient pre-tax income in the preceding fiscal year to support the increase.
The net book value of the assets under this capitalized lease was $1.2 million
at December 27, 1997 and $1.4 million at December 28, 1996 (see Note 10).
In January 1990, the Company entered into a capitalized lease arrangement
for certain office and warehouse facilities in Georgia with a partnership
related to the Company by common ownership ("Partnership 2"). The lease is
payable through January 2005 at $9,600 per month including interest imputed at
10.97%. The lease also provides for an annual adjustment in an amount which will
approximate the change in the Consumer Price Index. The net book value of the
assets under this capitalized lease was $399,000 at December 27, 1997 and
$456,000 at December 28, 1996 (see Note 10).
Aggregate annual principal payments applicable to long-term debt as of
December 27, 1997 are as follows:
(in thousands)
1998 $6,611
1999 7,111
2000 7,720
2001 26,138
2002 966
Thereafter 2,401
- ---------------------------
Total $50,947
===========================
Page 29 of 42
<PAGE>
The following is a schedule of approximate annual future minimum lease
payments under the capitalized leases with Partnership 1 and Partnership 2 for
the Company's primary operating facility and for the additional office and
warehouse facility (exclusive of contingent rental payments) as of December 27,
1997:
(in thousands)
1998 $685
1999 686
2000 685
2001 686
2002 685
Thereafter 241
- --------------------------------------------- ------------------
Total payments 3,668
Less - amounts representing interest (1,057)
- --------------------------------------------- ------------------
Total principal payments $2,611
============================================= ==================
6. Operating Lease Commitments and Rent Expense
The Company leases certain equipment and automobiles under noncancelable
operating leases. Approximate future minimum rental payments under these leases
are summarized as follows:
(in thousands)
1998 $ 489
1999 20
2000 5
- --------- --------------
Total $ 514
========= ==============
Rent expense, which includes rental adjustment payments and contingent
rentals paid to related parties (see Notes 5 and 7) of $0.6 million, $0.6
million and $0.5 million in 1997, 1996 and 1995, respectively, was $1.3 million
in 1997, $1.5 million in 1996 and $1.2 million in 1995.
7. Related Party Transactions
The Company has entered into capital leases for two operating facilities
with Partnership 1 and Partnership 2 (see Notes 5 and 10). The Company has
guaranteed the mortgages of Partnership 1 and Partnership 2 on these facilities.
These guarantees at December 27, 1997 were approximately $2.5 million. Total
interest expense on these capitalized leases was $370,000 in 1997, $411,000 in
1996 and $442,000 in 1995.
The Company also has sales and purchases with companies related by common
control or ownership. Such transactions are as follows:
Page 30 of 42
<PAGE>
(in thousands) Sales Purchases
- --------------- ------------ ----------------
1997 $259 $30
1996 381 12
1995 384 16
8. Income Taxes
The components of the income tax provision are as follows:
(in thousands) 1997 1996 1995
- --------------------------- ----------------- ---------------- ----------------
Federal:
Current $1,341 $3,845 $2,544
Deferred 2,384 (689) (412)
- --------------------------- ----------------- ---------------- ----------------
Subtotal 3,725 3,156 2,132
- --------------------------- ----------------- ---------------- ----------------
State:
Current 50 147 360
Deferred 90 (26) (50)
- --------------------------- ----------------- ---------------- ----------------
Subtotal 140 121 310
- --------------------------- ----------------- ---------------- ----------------
Total $3,865 $3,277 $2,442
=========================== ================= ================ ================
The following is a reconciliation of income taxes at the statutory tax
rate to the Company's effective rate:
1997 1996 1995
- ---------------------------------------------------------------------------
Federal taxes at statutory rate 34.0% 34.0% 34.0%
State taxes, net of Federal tax benefit 3.0% 3.3% 2.4%
Benefit of contributed property (0.5%) (0.6%) (0.9%)
- ---------------------------------------------------------------------------
Effective tax rate 36.5% 36.7% 35.5%
===========================================================================
Page 31 of 42
<PAGE>
Deferred income taxes result from timing differences in the
recognition of revenue and expense for tax and financial statement purposes. The
sources of temporary differences are as follows:
December 27, December 28,
(in thousands) 1997 1996
- -------------------------------------- ------------------- -------------------
Assets:
Inventories $846 $960
Accounts receivables (492) 1,588
Capitalized leases 394 397
Accrued expenses 438 314
- -------------------------------------- ------------------- -------------------
Gross deferred assets 1,186 3,259
- -------------------------------------- ------------------- -------------------
Liabilities:
Depreciation 392 410
Goodwill 1,300 843
Other 78 116
- -------------------------------------- ------------------- -------------------
Gross deferred liabilities 1,770 1,369
- -------------------------------------- ------------------- -------------------
Net deferred (liability) asset ($ 584) $1,890
====================================== =================== ===================
9. Business Segments
During 1997, two customers each accounted for 10% or more of sales and in
the aggregate accounted for 24% of sales. During 1996 and 1995, one customer
accounted for approximately 14% of sales. Except for the lift support product
line, which accounted for approximately 10% and 11% of gross sales in 1996 and
1995 respectively, no other product line accounted for more than 10% of sales.
Export sales, primarily to Canada and Holland in 1997, 1996 and 1995 were $3.9
million, $3.4 million and $2.4 million, respectively.
10. Commitments and Contingencies
Environmental Matters - The Company's primary operating facility in
Colmar, Pennsylvania, which is leased from Partnership 1, is located within an
area identified by the Environmental Protection Agency ("EPA") as a possible
source or location of volatile organic chemical contamination. In November 1990,
the EPA sent a general notice letter to certain present and former owners and
operators of properties within this area, informing them that they may be liable
under the Comprehensive Environmental Response, Compensation and Liability Act
with respect to this contamination. As a current operator of the Colmar
property, the Company received such a general notice letter. The Company may be
deemed jointly and severally liable, together with all other potentially
responsible parties, for (i) the costs of performing a study of the nature and
extent of the contamination and the possible alternatives for remediation, if
any, as well as (ii) the costs of effectuating that remediation. The Company
revised its lease agreement for its Colmar facility effective December 1990 to
provide that, as between the Company and Partnership 1, Partnership 1 will bear
any environmental liability and all related expenses, including legal expenses,
incurred by the Company or
Page 32 of 42
<PAGE>
Partnership 1 as a result of matters which arose other than from activities of
the Company. The Company believes that the ultimate outcome of this matter will
not have a material adverse impact upon the financial position of the Company.
Shareholder Agreement - A shareholder agreement was entered into in
September 1990 and subse quently amended in December 1992 and September 1993.
Under the agreement, each of Richard Berman, Steven Berman, Jordan Berman, Marc
Berman and Fred Berman has granted the others of them rights of first refusal,
exercisable on a pro rata basis or in such other proportions as the exercising
shareholders may agree, to purchase shares of the common stock of the Company
which any of them, or upon their deaths their respective estates, proposes to
sell to third parties. The Company has agreed with these shareholders that, upon
their deaths, to the extent that any of their shares are not purchased by any of
these surviving shareholders and may not be sold without registration under the
Securities Exchange Act of 1933, as amended (the "1933 Act"), the Company will
use its best efforts to cause those shares to be registered under the 1933 Act.
The expenses of any such registration will be borne by the estate of the
deceased shareholder.
Purchase Commitments - At December 27, 1997, the Company had commitments
to purchase inventory of approximately $1.6 million. 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, guarantees and requires compliance with the same covenants as on the
Company's debt (see Note 5).
Leases - In accordance with the contingent rental provisions of the lease
agreement for the Company's primary operating facility (see Note 5), management
expects that, effective January 1998, the total monthly lease payments will be
increased from approximately $87,000 to approximately $89,000.
11. Capital Stock
Undesignated Stock - The Company has 75,000,000 shares authorized of
undesignated capital stock for future issuance. The designation, rights and
preferences of such shares will be determined by the Board of Directors.
Incentive Stock Plan - In September 1990, the Board of Directors approved
an incentive stock plan to issue as options, up to 322,500 shares of common
stock, to employees, directors, consultants and advisors of the Company or its
affiliates with no one "individual" to receive more than 10% of the total. In
May 1997, the shareholders approved an increase in the number of shares to
422,500. All options shall be granted within ten years of the plan adoption date
with the exercise price and period determined by the Board of Directors on a
discretionary basis but the option price per share shall not be less than 100%
of the fair market value of a share on the date of grant (not less than 110% if
granted to an individual possessing more than 10% of the voting rights of the
Company's outstanding capital stock). No more than $100,000 of options may be
exercised by one individual in any calendar year. The following is a summary of
transactions under the plan:
Page 33 of 42
<PAGE>
<TABLE>
<CAPTION>
Number of Shares
-------------------------------------------------------------
Available
Option Price for Future
Per Share Outstanding Exercisable Grants
- -------------------------------- --------------- -------------- --------------- -------------
<S> <C> <C> <C> <C>
Balance at December 31, 1994 $8.875 13,000 13,000 309,500
19945
Became exercisable - 10,500 -
Options granted 5.75-7.75 22,250 - (22,250)
- -------------------------------- --------------- -------------- --------------- -------------
Balance at December 30, 1995 5.75-8.875 35,250 23,500 287,250
Became exercisable - 9,750 -
Exercised 5.75-6.125 (3,625) (3,625) -
Canceled 6.75-8.875 (4,000) - 4,000
Options granted 6.75 -7.50 211,000 - (211,000)
- -------------------------------- --------------- -------------- --------------- -------------
Balance at December 28, 1996 5.75 - 8.875 238,625 29,625 80,250
Increase in available shares - - 100,000
Became exercisable - 44,595 -
Exercised 7.75 (195) (195) -
Canceled 7.00 - 8.00 (31,805) - 31,805
Options granted 7.25 - 9.50 125,500 - (125,500)
- -------------------------------- --------------- -------------- --------------- -------------
Balance at December 27, 1997 $5.75 - $9.50 332,125 74,025 86,555
================================ =============== ============== =============== =============
</TABLE>
The Company applies Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees", and related interpretations in
accounting for this plan. Accordingly, no compensation expense has been
recognized. The following pro forma amounts were determined as if the Company
had accounted for its stock options using the fair value method (Black-Scholes
pricing model).
<TABLE>
<CAPTION>
(in thousands except per share amounts) 1997 1996 1995
- -------------------------------- -------------------- --------------------- ---------------------
<S> <C> <C> <C>
Net income:
As reported $6,714 $5,662 $4,433
Pro forma 6,585 5,604 4,405
Basic and diluted earnings per share:
As reported $0.83 $0.71 $0.56
Pro forma $0.82 $0.70 $0.55
</TABLE>
Employee Stock Purchase Plan - In March 1992, the Board of Directors
adopted the Employee Stock Purchase Plan which was subsequently approved by the
shareholders. The Plan permits the granting of options
Page 34 of 42
<PAGE>
to purchase up to 300,000 shares of common stock by the employees of the
Company. In any given year, employees may purchase up to 4% of their annual
compensation, with the option price set at 85% of the fair market value of the
stock on the date of exercise. All options granted during any year expire on the
last day of the fiscal year. During 1997, optionees had exercised rights to
purchase 717 shares at prices from $6.27 to $8.50 per share for total net
proceeds of $5,600.
401(k) Retirement Plan - The Company's 401(k) retirement plan was amended
in 1992 to permit contributions in cash or kind, including Company qualified
securities. The Company accrued for a discretionary contribution for 1997 which
will be funded in early 1998 consisting of cash and approximately 17,200 shares
of Company common stock at a value of approximately $170,000. The Company made a
discretionary contribution for 1996 consisting of cash and 39,400 shares of
Company common stock, issued in 1997, at a value of approximately $278,000 and
a discretionary contribution for 1995 consisting of cash and 39,500 shares of
stock, issued in 1996, at a value of approximately $261,000.
12. Subsequent Events
The Scan-Tech Transaction - 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 the Far East with annual sales of
approximately $10 million in 1997. The acquisition was affected through the
payment of $1 million in cash, 350,000
shares of the Company's common stock and the 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, and the computation of diluted earnings per share. The remaining 100,000
are subject to performance criteria and will be included in the computation of
purchase price and diluted earnings per share as the criteria are met. The
Company will account for this acquisition using the purchase method of
accounting, which will result in the recording of goodwill of approximately $2.7
million.
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 $10
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 on June 30, 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
$500,000 beginning in October 1998.
Page 35 of 42
<PAGE>
Supplementary Financial Information
Quarterly Results of Operations:
The following is a summary of the unaudited quarterly results of
operations for the years ended December 27, 1997 and December 28, 1996:
<TABLE>
<CAPTION>
(in thousands, except per shareFirstnQuarter Second Quarter Third Quarter Fourth Quarter
- ------------------------------ --------------- ----------------- --- ---------------- ----------------
1997
-----------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales $33,299 $40,959 $40,817 $37,971
Income from operations 2,613 4,604 4,623 2,944
Net income 961 2,253 2,330 1,170
Basic and diluted earnings per
share 0.12 0.28 0.29 0.15
1996
-----------------------------------------------------------------------
Net sales $32,540 $39,678 $38,529 $36,205
Income from operations 2,175 4,043 4,271 2,755
Net income 763 1,922 2,007 970
Basic and diluted earnings per
share 0.10 0.24 0.25 0.12
</TABLE>
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
None
PART III
Item 10. Directors and Executive Officers of the Registrant.
Information concerning the directors of the Company is incorporated by
reference to the section entitled "Election of Directors" in the Company's Proxy
Statement for its Annual Meeting of Shareholders to be held on May 14, 1998.
Information concerning executive officers of the Company who are not also
directors is presented in Item 4.1, Part I of this Report on Form 10-K.
Item 11. Executive Compensation.
Incorporated by reference to the section entitled "Executive Compensation
and Transactions" in the Company's Proxy Statement for its Annual Meeting of
Shareholders to be held on May 14, 1998.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
Incorporated by reference to the section entitled "Beneficial Ownership of
Common Stock" in the Company's Proxy Statement for its Annual Meeting of
Shareholders to be held on May 14, 1998.
Page 36 of 42
<PAGE>
Item 13. Certain Relationships and Related Transactions.
Incorporated by reference to the section entitled "Executive Compensation
and Transactions" in the Company's Proxy Statement for its Annual Meeting of
Shareholders to be held on May 14, 1998.
PART IV
Item 14. Exhibits, Consolidated Financial Statement Schedules and Reports
on Form 8-K.
(a)(1) Consolidated Financial Statements.The consolidated financial state-
ments of the Company and related documents are listed in Item 8, Part II, of
this Report on Form 10-K.
Report of Independent Public Accountants
Consolidated Statements of Income for the years ended December 27,
1997, December 28, 1996 and December 30, 1995
Consolidated Balance Sheets as of December 27, 1997 and
December 28, 1996
Consolidated Statements of Shareholders' Equity for the years ended
December 27, 1997, December 28, 1996 and December 30, 1995.
Consolidated Statements of Cash Flows for the years ended December
27, 1997, December 28, 1996 and December 30, 1995.
Notes to Consolidated Financial Statements
(a)(2) Consolidated Financial Statement Schedules. The following
consolidated financial statement schedule of the Company and
related documents are filed with this Report on Form 10-K:
Page
Report of Independent Public Accountants on Financial Statement
Schedule........................................................ 41
Schedule II - Valuation and Qualifying Accounts................ 42
(a)(3) Exhibits.
Number Title
2.1 (1) Asset Purchase Agreement, dated as of October 5, 1994, between the
Company and SDI Operating Partners, L.P., for the acquisition of
the Dorman Products Division.
2.1.1 (2) Amendment to the Asset Purchase Agreement, dated as of October 5,
1994, between the Company and SDI Operating Partners, L.P., for
the acquisition of the Dorman Products Division.
2.1.2 (2) Exhibit List to the Asset Purchase Agreement, dated as of October
5, 1994, between the Company and SDI Operating Partners, L.P., for
the acquisition of the Dorman Products Division.
3.1 (3) Amended and Restated Articles of Incorporation of the Company.
Page 37 of 42
<PAGE>
3.2 (3) Bylaws of the Company.
4.1 (3) Specimen Common Stock Certificate of the Company.
4.2 (3) Shareholders' Agreement, dated September 17, 1990.
4.2.1 (4) Amendment to Shareholders' Agreement, dated December 29, 1992,
amending 4.2.
4.2.2 (5) Amendment to Shareholders' Agreement, dated September 14, 1993,
amending 4.2.
4.2.3 (6) Amendment to Shareholders' Agreement, dated March 14, 1994,
amending 4.2.
10.1 (3)+ Employment Agreement, dated September 17, 1990, between the
Company and Richard Berman.
10.1.1 (3)+ Agreement, dated September 17, 1990, between the Company and
Richard Berman, amending 10.1
10.1.2 (5)+ Agreement, dated September 13, 1993, between the Company and
Richard Berman, amending 10.1.
10.2 (3)+ Employment Agreement, dated September 17, 1990, between the
Company and Steven Berman.
10.2.1 (3)+ Letter Agreement, dated September 17, 1990, between the Company
and Steven Berman, amending 10.2.
10.2.2 (5)+ Agreement, dated September 13, 1993, between the Company and
Steven Berman, amending 10.1.
10.3 (3) Lease, dated December 1, 1990, between the Company and the Berman
Real Estate Partnership, for premises located at 3400 East Walnut
Street, Colmar, Pennsylvania.
10.3.1 (5) Amendment to Lease, dated September 10, 1993, between the Company
and the Berman Real Estate Partnership, for premises located at
3400 East Walnut Street, Colmar, Pennsylvania, amending 10.3.
10.3.2 (10) Assignment of Lease, dated February 24, 1997, between the Company,
the Berman Real Estate Partnership and BREP 1, for the premises
located at 3400 East Walnut Street, Colmar, Pennsylvania,
assigning 10.3.
10.4 (3) Lease, dated January 3, 1990, between the Company and the Berman
Real Estate Partnership, for premises located at 390 Old Bremen
Road, Carrollton, Georgia.
10.4.1 (5) Amendment to Lease, dated September 10, 1993, between the Company
and the Berman Real Estate Partnership, for premises located at
390 Old Bremen Road, Carrollton, Georgia, amending 10.4.
10.4.2 (6) Amendment to Lease, dated February 17, 1994, between the Company
and the Berman Real Estate Partnership, for premises located at
390 Old Bremen Road, Carrollton, Georgia, amending 10.4.
Page 38 of 42
<PAGE>
10.5 (9) Amended and Restated Credit Agreement by and Among the Company and
CoreStates Bank, N.A. for Itself and as Agent, The Fifth Third
Bank and NBD Bank dated as of January 1, 1995.
10.6 (3)+ R&B, Inc. 1990 Incentive Stock Plan.
10.6.1 (3)+ Amendment No. 1 to R&B, Inc. 1990 Incentive Stock Plan.
10.6.2 (5)+ Amendment No. 2 to R&B, Inc. 1990 Incentive Stock Plan.
10.7 (4)+ R&B, Inc. 401(k) Retirement Plan and Trust.
10.7.1 (8)+ Amendment No. 1 to the R&B, Inc. 401(k) Retirement Plan and Trust.
10.8 (4)+ R&B, Inc. Employee Stock Purchase Plan.
21 Subsidiaries of the Company (filed with this report)
24 Consent of Arthur Andersen LLP (filed with this report)
27 Financial Data Schedule (filed with this report)
- -------------------------
+ Management Contracts and Compensatory Plans, Contracts or Arrangements.
1 Incorporated by reference to Form 8-K dated October 12, 1994.
2 Incorporated by reference to Form 8-K dated January 3, 1995.
3 Incorporated by reference to the Exhibits filed with the Company's
Registration Statement on Form S-1 and Amendments No. 1, No. 2, and No. 3
thereto (Registration No. 33-37264).
4 Incorporated by reference to the Exhibits files with the Company's Annual
Report on Form 10-K for the fiscal year ended December 26, 1992.
5 Incorporated by reference to the Exhibits filed with the Company's
Registration Statement on Form S-1 and Amendment No. 1 thereto
(Registration No. 33-68740).
6 Incorporated by reference to the Exhibits filed
with the Company's Annual Report on Form 10-K for the fiscal year ended December
25, 1993.
7 Incorporated by reference to the Exhibits filed with the Company's
Quarterly Report on Form 10-Q for the quarter ended March 26, 1994.
8 Incorporated by reference to the Exhibits filed with the Company's
Quarterly Report on Form 10-Q for the quarter ended June 25, 1994.
9 Incorporated by reference to the Exhibits filed with the Company's Current
Report on Form 8-K dated January 3, 1995 and filed January 17, 1995.
10 Incorporated by reference to the Exhibits files with the Company's
Annual Report on Form 10-K for the fiscal year ended December 28, 1996.
(b) Reports on Form 8-K.
None
Page 39 of 42
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
and Exchange Act of 1934, the registrant has duly caused this report to be
signed on its behalf by the undersigned thereunto duly authorized.
R&B, Inc.
Date: March 27, 1998 By: Richard N. Berman
-----------------------
Richard N. Berman, Chairman, President
and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, this report has been signed below by the following persons on behalf of
the registrant and in the capacities and on the dates indicated.
Signature Capacity Date
Richard N. Berman President, Chief Executive March 27 , 1998
Richard N. Berman Officer, and Chairman of the
Board of Directors
(principal executive officer)
Malcolm S. Walter Chief Financial Officer March 27, 1998
Malcolm S. Walter (principal financial and
accounting officer)
Steven L. Berman Executive Vice President, March 27, 1998
Steven L. Berman Secretary-Treasurer, and
Director
George L. Bernstein Director March 27, 1998
George L. Bernstein
Edgar W. Levin Director March 27, 1998
Edgar W. Levin
John F. Creamer, Jr. Director March 27, 1998
John F. Creamer, Jr.
Jack A. Robinson Director March 27, 1998
Jack A. Robinson
Page 40 of 42
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
ON FINANCIAL STATEMENT SCHEDULE
To R&B, Inc.:
We have audited in accordance with generally accepted auditing standards, the
financial statements of R&B, Inc. and subsidiaries included in this Form 10-K
and have issued our report thereon dated February 19, 1998. Our audit was made
for the purpose of forming an opinion on the statements taken as a whole. The
schedule listed in Item 14(a)(2) is the responsibility of the Company's
management and is presented for purposes of complying with the Securities and
Exchange Commission's rules and is not part of the basic financial statements.
This schedule has been subjected to the audit procedures applied in the audits
of the basic financial statements and, in our opinion, fairly states in all
material respects the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.
Arthur Andersen LLP
Philadelphia, PA
February 19, 1998
Page 41 of 42
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
(in thousands) For the Year Ended
- ----------------------------------------------- -----------------------------------------------------
December 27, December 28, December 30,
1997 1996 1995
------------------ ---------------- ----------------
<S> <C> <C> <C>
Allowance for doubtful accounts:
Balance, beginning of period $962 $653 $226
Provision 417 519 467
Charge-offs (370) (210) (40)
- ----------------------------------------------- ------------------ ---------------- ----------------
Balance, end of period $1,009 $962 $653
=============================================== ================== ================ ================
Allowance for customer credits:
Balance, beginning of period $10,343 $6,826 $3,429
Provision 23,268 26,427 20,338
Charge-offs (27,406) (22,910) (16,941)
- ----------------------------------------------- ------------------ ---------------- ----------------
Balance, end of period $6,205 $10,343 $6,826
=============================================== ================== ================ ================
</TABLE>
Page 42 of 42
Exhibit 21
Subsidiaries of R&B, Inc.
Significant Subsidiaries Jurisdiction
- ------------------------ ------------
RB Distribution, Inc. Pennsylvania
RB Management, Inc. Pennsylvania
Dorman Products of America, Ltd. Kentucky
RB Service Supply, L.P. Georgia
RBPEACH, Inc. Delaware
Cosmos International, Inc. Minnesota
Motor Power Industries, Inc. Delaware
Exhibit Page 1
Exhibit 24
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
To R&B, Inc.:
As independent public accountants, we hereby consent to the incorporation of our
reports dated February 19, 1998 included in R&B, Inc.'s 10-K for the year ended
December 27, 1997, into the Company's previously filed Registration Statements
on Form S-1 (File Nos. 33-52946 and 33-56492).
ARTHUR ANDERSEN LLP
Philadelphia, PA
March 26, 1998
Exhibit Page 2
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> DEC-27-1997
<PERIOD-START> DEC-29-1996
<PERIOD-END> DEC-27-1997
<CASH> 1,601
<SECURITIES> 0
<RECEIVABLES> 44,750
<ALLOWANCES> (7,214)
<INVENTORY> 38,264
<CURRENT-ASSETS> 80,048
<PP&E> 30,278
<DEPRECIATION> (13,896)
<TOTAL-ASSETS> 128,707
<CURRENT-LIABILITIES> 21,439
<BONDS> 44,336
0
0
<COMMON> 81
<OTHER-SE> 61,081
<TOTAL-LIABILITY-AND-EQUITY> 128,707
<SALES> 153,046
<TOTAL-REVENUES> 153,046
<CGS> 93,032
<TOTAL-COSTS> 45,230
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,205
<INCOME-PRETAX> 10,579
<INCOME-TAX> 3,865
<INCOME-CONTINUING> 6,714
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,714
<EPS-PRIMARY> 0.83
<EPS-DILUTED> 0.83
</TABLE>
