- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-------------------
FORM 10-Q
-------------------
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 28, 1998
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
-------------------
Commission file number 0-18914
R&B, INC.
Incorporated pursuant to the Laws
of the Commonwealth of Pennsylvania
-------------------
IRS - Employer Identification No. 23-2078856
3400 East Walnut Street, Colmar, Pennsylvania 18915
(215) 997-1800
-------------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days. Yes |X| No |_|
As of May 8, 1998 the Registrant had 8,068,581 common shares, $.01 par value,
outstanding.
- --------------------------------------------------------------------------------
<PAGE>
R & B, INC. AND SUBSIDIARIES
INDEX TO QUARTERLY REPORT ON FORM 10-Q
MARCH 28, 1998
Page
Part I -- FINANCIAL INFORMATION
Item 1.Consolidated Financial Statements (unaudited)
Statements of Income:
Thirteen Weeks Ended March 28, 1998 and March 29, 1997 3
Balance Sheets....................................... 4
Statements of Cash Flows............................. 5
Notes to Financial Statements........................ 6
Item 2.Management's Discussion and
Analysis of Results of Operations and
Financial Condition.............................. 7
Part II -- OTHER INFORMATION
Item 1.Legal Proceedings.................................... 11
Item 6.Exhibits and Reports on Form 8-K..................... 11
Signature .............................................. 12
Page 2 of 12
<PAGE>
PART I. FINANCIAL INFORMATION
R&B, INC. AND SUBSIDIARIES
<TABLE>
CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
<CAPTION>
For the Thirteen Weeks Ended
------------------------------
March 28, March 29,
(in thousands, except per share data) 1998 1997
- --------------------------------------------------------------------------------------------
<S> <C> <C>
Net Sales $39,012 $33,299
Cost of goods sold 23,985 19,994
- --------------------------------------------------------------------------------------------
Gross profit 15,027 13,305
Selling, general and administrative expenses 12,235 10,692
- --------------------------------------------------------------------------------------------
Income from operations 2,792 2,613
Interest expense, net 940 1,100
- --------------------------------------------------------------------------------------------
Income before taxes 1,852 1,513
Provision for taxes 676 552
- --------------------------------------------------------------------------------------------
Net Income $ 1,176 $ 961
============================================================================================
Earnings Per Share
Basic $0.14 $0.12
Diluted 0.14 0.12
Average Shares Outstanding
Basic 8,318 8,027
Diluted 8,409 8,027
============================================================================================
</TABLE>
The accompanying Notes are an integral part of these Consolidated
Financial Statements.
Page 3 of 12
<PAGE>
<TABLE>
R&B, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<CAPTION>
March 28, December 27,
(in thousands, except share data) 1998 1997
- --------------------------------------------------- ----------------- -----------------
(unaudited)
<S> <C> <C>
Assets
Current Assets:
Cash and cash equivalents $2,478 $1,601
Accounts receivable, less allowance for doubtful
accounts and customer credits of $7,332 and $7,214 38,099 37,536
Inventories 44,186 38,264
Deferred income taxes 1,186 1,186
Prepaids and other current assets 698 1,461
- --------------------------------------------------- ----------------- -----------------
Total current assets 86,647 80,048
- --------------------------------------------------- ----------------- -----------------
Property, Plant and Equipment, net 16,300 16,382
Intangible Assets 32,055 29,747
Other Assets 2,471 2,530
- --------------------------------------------------- ----------------- -----------------
Total $137,473 $128,707
=================================================== ================= =================
Liabilities and Shareholders' Equity
Current Liabilities:
Current portion of long-term debt $ 7,237 $6,611
Accounts payable 12,364 8,982
Accrued compensation 3,009 2,923
Other accrued liabilities 4,991 2,923
- --------------------------------------------------- ----------------- -----------------
Total current liabilities 27,601 21,439
Long-Term Debt 43,120 44,336
Deferred Income Taxes 1,770 1,770
Commitments and Contingencies (Note 5)
Shareholders' Equity:
Common stock, par value $.01; authorized
25,000,000 shares; issued 8,318,037 and 8,026,254 83 81
Additional paid-in capital 32,901 30,221
Cumulative translation adjustments (38) -
Retained earnings 32,036 30,860
Total shareholders' equity 64,982 61,162
- --------------------------------------------------- ----------------- -----------------
Total $137,473 $128,707
=================================================== ================= =================
</TABLE>
The accompanying Notes are an integral part of these Consolidated
Financial Statements.
Page 4 of 12
<PAGE>
<TABLE>
R&B, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
<CAPTION>
For the Thirteen Weeks Ended
--------------------------------------
March 28, March 29,
(in thousands) 1998 1997
- -------------------------------------------------------------- ------------------ -------------------
<S> <C> <C>
Cash Flows from Operating Activities:
Net income $ 1,176 $961
Adjustments to reconcile net income to cash provided by
operating activities:
Depreciation and amortization 1,156 1,079
Provision for doubtful accounts 132 68
Changes in assets and liabilities, net of effects of acquisitions:
Accounts receivable 282 678
Inventories (3,212) (755)
Prepaids and other current assets 980 95
Other assets (44) (852)
Accounts payable 2,013 350
Other accrued liabilities 1,301 1,035
- -------------------------------------------------------------- ------------------ -------------------
Cash provided by operating activities 3,784 2,659
- -------------------------------------------------------------- ------------------ -------------------
Cash Flows from Investing Activities:
Property, plant and equipment additions (573) (476)
Business acquisitions, net of cash acquired (980) -
- -------------------------------------------------------------- ------------------ -------------------
Cash used in investing activities (1,553) (476)
- -------------------------------------------------------------- ------------------ -------------------
Cash Flows from Financing Activities:
ACTIVITIES: a
Net proceeds from revolving credit 500 1,650
Repayment of term loans and capitalized lease obligations (1,866) (1,516)
Proceeds from common stock issuances 12 -
- -------------------------------------------------------------- ------------------ -------------------
Cash (used in) provided by financing activities (1,354) 134
- -------------------------------------------------------------- ------------------ -------------------
Net Increase in Cash and Cash Equivalents 877 2,317
Cash and Cash Equivalents, Beginning of Period 1,601 923
- -------------------------------------------------------------- ------------------ -------------------
Cash and Cash Equivalents, End of Period $2,478 $3,240
============================================================== ================== ===================
Supplemental Cash Flow Information
Cash paid for interest expense $ 834 $ 732
Cash paid for income taxes $ 32 $ 590
</TABLE>
The accompanying Notes are an integral part of these Consolidated
Financial Statements.
Page 5 of 12
<PAGE>
R&B, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THIRTEEN WEEKS ENDED MARCH 28, 1998 AND MARCH 29, 1997 (UNAUDITED)
1. Basis of Presentation
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Rule 10-01 of
Regulation S-X. However, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring adjustments) considered necessary for a fair presentation
have been included. Operating results for the thirteen week period ended March
28, 1998 are not necessarily indicative of the results that may be expected for
the fiscal year ending December 26, 1998. For further information, refer to the
financial statements and footnotes thereto included in R&B, Inc.'s (the
"Company") Annual Report on Form 10-K for the year ended December 27, 1997.
2. Inventories
Inventories include the cost of material, freight, direct labor and
overhead utilized in the processing of the Company's products. Inventories were
as follows:
March 28, December 27,
(in thousands) 1998 1997
- ------------------- -------------- --------------
Bulk product $22,909 $21,800
Finished product 16,945 12,737
Packaging materials 4,332 3,727
- ------------------- -------------- --------------
Total $44,186 $38,264
=================== ============== ==============
3. Intangible Assets
Intangible assets consist of goodwill, patents and a non-compete
covenant. Goodwill is amortized over a period of 40 years with patents and the
non-compete covenant amortized over the specific life of each asset. At March
28, 1998, goodwill was $30.7 million, patents were $1.2 million and the
non-compete covenant was $0.2 million. Amortization of these assets was $0.3
million and $0.3 in the first quarter of 1998 and 1997, respectively.
4. Earnings Per Share
The Company adopted Statement of Financial Accounting Standards No. 128
(SFAS 128), "Earnings Per Share" in 1997. In conformity with SFAS 128, the
Company has included basic and diluted earnings per share on the face of the
Statements of Income for each year presented. The difference between basis and
diluted average shares outstanding is the dilutive effect of stock options.
Page 6 of 12
<PAGE>
R&B, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
General
Over the periods presented, the Company has focused its efforts on providing
an expanding array of new product offerings and strengthening its relationships
with its customers. To that end, the Company has made significant investments to
increase market penetration, primarily in the form of product development,
customer service, customer credits and allowances, and strategic acquisitions.
The Company calculates its net sales by subtracting credits and allowances
from gross sales. Credits and allowances include costs for co-operative
advertising, product returns, discounts given to customers who purchase new
products for inclusion in their stores, and the cost of competitors' products
that are purchased from the customer in order to induce a customer to purchase
new product lines from the Company. The credits and allowances are designed to
increase market penetration and increase the number of product lines carried by
customers by displacing competitors' products within customers' stores and
promoting consolidation of customers' suppliers.
The introduction of new products and product lines to customers may cause
significant fluctuations from quarter to quarter in the Company's results of
operations.
Over the periods presented, the Company has increased the percentage of
products sold to its major customers, in part due to consolidation within the
automotive aftermarket. As a general rule, sales to the Company's major
customers are at lower margins than sales to other customers.
In January of 1998, the Company acquired the outstanding stock of Scan-Tech
USA/Sweden AB ("Scan-Tech"). Headquartered in Stockholm, Sweden, Scan-Tech is a
distributor of replacement automotive parts, primarily Volvo and Saab,
throughout Europe, the United States, Russia, the Middle East, and the Far East.
Page 7 of 12
<PAGE>
Results of Operations
The following table sets forth, for the periods indicated, the percentage of
net sales represented by certain items in the Company's Consolidated Statements
of Income.
<TABLE>
<CAPTION>
Percentage of Net Sales
For the Thirteen Weeks Ended
--------------------------------------------------
March 28, March 29,
1998 1997
- --------------------------------------- ------------------------- ------------------------
<S> <C> <C>
Net sales 100.0% 100.0%
Cost of goods sold 61.5 60.0
- --------------------------------------- ------------------------- ------------------------
Gross profit 38.5 40.0
Selling, general and administrative expenses 31.4 32.2
- --------------------------------------- ------------------------- ------------------------
Income from operations 7.1 7.8
Interest expense, net 2.4 3.3
- --------------------------------------- ------------------------- ------------------------
Income before taxes 4.7 4.5
Provision for taxes 1.7 1.7
- --------------------------------------- ------------------------- ------------------------
Net income 3.0% 2.9%
======================================= ========================= ========================
</TABLE>
Thirteen Weeks Ended March 28, 1998 Compared to
Thirteen Weeks Ended March 29, 1997
Net sales increased to $39.0 million for the thirteen weeks ended March 28,
1998 from $33.3 million for the same period in 1997, an increase of 17.2%. The
acquisition of Scan-Tech accounted for $3.2 million of this increase while the
remaining $2.5 million resulted from increased sales in all segments of our core
business, particularly the retail segment.
Cost of goods sold for the thirteen weeks ended March 28, 1998 increased to
$24.0 million from $20.0 million for the same period in 1997, an increase of
20.0%. As a percent of net sales, cost of goods sold for the thirteen weeks
ended March 28, 1998 increased to 61.5% from 60.0% for the thirteen weeks ended
March 29, 1997. This percentage increase resulted from the acquisition of
Scan-Tech, which realizes lower gross margins than the Company's historical
levels, and increased sales to the Company's largest customers, which have
relatively lower margins.
Selling, general and administrative expenses for the thirteen weeks ended
March 28, 1998 increased to $12.2 million from $10.7 million for the thirteen
weeks ended March 29, 1997, an increase of 14.4%. As a percent of net sales,
however, selling, general and administrative expenses decreased to 31.4% from
32.1%. The increase of $1.5 million includes the expenses for Scan-Tech ($0.3
million), recruiting fees for new employees, increased salaries, freight,
commissions and amortization of goodwill associated with Scan-Tech.
Interest expense, net, decreased to $0.9 million for the thirteen weeks
ended March 28, 1998 from $1.1million for the thirteen weeks ended March 29,
1997. This decrease was the result of lower borrowings.
A provision for income taxes of $0.7 million was recorded for the thirteen
weeks ended March 28, 1998 and $0.6 million was recorded for the thirteen weeks
ended March 29, 1997. The Company's effective tax rate was 36.5% for both
periods.
Net income increased to $1.2 million for the thirteen weeks ended March 28,
1998 from $1.0 million for the thirteen weeks ended March 29, 1997. As a
percentage of net sales, net income increased to 3.0% for the thirteen week
period in 1998 from 2.9% for the same period in 1997.
Page 8 of 12
<PAGE>
Liquidity and Capital Resources
The Company has financed its growth primarily through cash flow from its
operations and borrowings under its credit facility. Working capital was $59.0
million as of March 28, 1998 and $64.1 million as of March 29, 1997. The Company
believes that the cash generated from operations and borrowings available under
its revolving credit facility will be sufficient to meet the Company's working
capital needs and to fund expansion for the foreseeable future.
Net cash provided by operating activities was $3.8 million for the thirteen
weeks ended March 28, 1998 and $2.7 million for the thirteen weeks ended March
29, 1997. These amounts represent net income plus depreciation and
amortization less changes in working capital. During 1998, the most significant
changes were increases in inventories, accounts payable and other accrued
liabilities. During 1997, the most significant changes were increases in other
accrued liabilities, other assets and inventories.
Net cash used in investing activities amounted to $1.6 million and $0.5
million for the thirteen weeks ended March 28, 1998 and March 29, 1997,
respectively. In 1998, the acquisition of Scan-Tech and additions to property,
plant and equipment accounted for the investing activities. In 1997, additions
to property, plant and equipment accounted for all of the cash used.
Net cash used in financing activities amounted to $1.3 million for the
thirteen weeks ended March 28, 1998 and net cash provided by financing
activities amounted to $0.1 million for the thirteen weeks ended March 29, 1997.
In 1998, repayments of term loans and capitalized leases was partially offset by
advances under the Company's revolving credit facility. In 1997, proceeds from
the Company's revolving credit facility nearly equaled the repayment of term
loans and capitalized lease obligations.
Commercial Borrowings. In January 1995, the Company expanded its credit
facility to $60.0 million from a syndicate of commercial banks comprised of
CoreStates Bank, N.A. (agent), The Fifth Third Bank N.A. and a third bank who
was replaced by National City Bank in 1997. The credit facility consists of a
term portion of $25.0 million (1995 Term Loan), a revolving credit portion of
$30.0 million, and a letter of credit portion of $5.0 million used to secure the
Bonds. The term portion of the facility bears interest at a floating rate equal,
at the Company's option, to Libor plus 110 basis points, or CoreStates Bank,
N.A.'s prime rate, has a seven-year term and requires graduated amortization
payments in the amount of $3.5 million in 1998 increasing by $0.5 million each
year thereafter with a final payment of $6.0 million in 2001. The revolving
credit portion bears interest at a floating rate equal, at the Company's option,
to Libor plus 85 basis points, or CoreStates Bank, N.A.'s prime rate, and
expires January 31, 2001. In April 1996, the Company amended its credit facility
to include a new $12.0 million term loan (1996 Term Loan) with interest at a
floating rate equal, at the Company's option to Libor plus 150 basis points, or
the bank's prime rate. The loan has a five year term and is payable in equal
monthly principal payments of $200,000.
In May 1996, the Company entered into an interest rate swap agreement with
the agent bank of the syndicate of commercial banks providing the Company's
credit facility. The swap agreement has the effect of fixing the interest rate
on $11.1 million of term debt to 7.32% from a floating rate of Libor plus 110
basis points. The Company is exposed to credit loss in the event of
nonperformance under the interest rate swap agreement by the agent bank,
however, such nonperformance is not anticipated.
In December 1996, the revolving credit portion of the facility was increased
from $30.0 million to $35.0 million. Borrowings under the revolving credit
portion of the facility and the 1996 Term Loan are subject to a borrowing base
computation equal to 80% of qualified receivables and 50% of qualified
inventories, as defined. The credit facility is secured by the stock of the
Company's subsidiaries and first priority liens on the Company's and
subsidiaries assets, including accounts receivable, inventory and all other
tangible or intangible property. At March 28, 1998, the Company had borrowings
of $24.5 million under the term loans and $19.0 million under the revolving
facility and has $16.0 million of borrowing capacity under the revolving
facility.
Industrial Revenue Bonds. Construction of the Company's Warsaw, Kentucky
facility in 1990 was funded by the Bonds. The Bonds bear interest at an annual
rate of 4% payable monthly and require annual principal payments of $300,000 or
$350,000 in alternating years with the final payment due in July, 2009.
Page 9 of 12
<PAGE>
Capitalized Leases. The Company's leases for its Pennsylvania and Georgia
facilities are recorded as capitalized leases in the Company's financial
statements.
Foreign Currency Fluctuations. Approximately 40% of the Company's products
are purchased from a variety of foreign countries. The products generally are
purchased through purchase orders with the purchase price specified in U.S.
dollars. Accordingly, the Company does not have exposure to fluctuation in the
relationship between the dollar and various foreign currencies between the time
of execution of the purchase order and payment for the product. However, to the
extent that the dollar decreases in value to foreign currencies in the future,
the price of the product in dollars for new purchase orders may increase. The
Company attempts to lessen the impact of these currency fluctuations by
resourcing its purchases to other countries.
Impact of Inflation
The Company has not generally been adversely affected by inflation. The
Company believes that price increases resulting from inflation generally could
be passed on to its customers, since prices charged by the Company are not set
by long-term contracts.
The Acquisition of Scan-Tech
In January 1998, the Company acquired the outstanding stock of Scan-Tech
USA/Sweden AB and related entities ("Scan-Tech"). Headquartered in Stockholm,
Sweden, Scan-Tech is a distributor of replacement automotive parts, primarily
Volvo and Saab, throughout Europe, the United States, Russia, the Middle East
and Far East with annual sales of approximately $10 million in 1997. The
acquisition was effected through the payment of $1 million in cash, 350,000
shares of the Company's common stock and assumption of certain liabilities
including approximately $0.8 million in bank debt. Of the shares, 250,000 will
vest over four years and will be included in the computation of the purchase
price. The remaining 100,000 are subject to performance criteria and will be
included in the computation of purchase price as the criteria are met.
The Champ Transaction
In October 1997, the Company announced that it had signed a letter of intent
to acquire selective assets of the Service Line Division (" Champ") of Standard
Motor Products, Inc. for approximately $8 million representing the net asset
value of inventories. Headquartered in Edwardsville, Kansas, the Service Line
Division includes the Champ Service Line, APS Service Line and Pik-A-Nut. Champ
had annual sales of approximately $40 million in 1997. The transaction is
expected to close in the third quarter of 1998, and is subject to certain
pre-closing conditions and post-closing adjustments.
The Company has arranged for an additional $10 million in term debt from its
bank syndicate which it expects to use to finance this acquisition and
associated costs. The new debt, with interest at Libor plus 130 basis points,
has a five-year term and will be payable in equal quarterly installments of $0.5
beginning in October, 1998.
Page 10 of 12
<PAGE>
PART II: OTHER INFORMATION
Item 1. Legal Proceedings
In addition to commitments and obligation which arise in the ordinary course
of business, the Company is subject to various claims and legal actions from
time to time involving contracts, competitive practices, trademark rights,
product liability claims and other matters arising out of the conduct of the
Company's business.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit No. Description
27 Financial Data Schedule
(b) Reports on Form 8-K
None
Page 11 of 12
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
R & B, INC.
Date May 11, 1998 \s\ Richard Berman
Richard Berman
President
Date May 11, 1998 \s\ Malcolm Walter
Malcolm Walter
Chief Financial & Accounting Officer
Page 12 of 12
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> DEC-26-1998
<PERIOD-START> DEC-28-1997
<PERIOD-END> MAR-28-1998
<CASH> 2,478
<SECURITIES> 0
<RECEIVABLES> 45,431
<ALLOWANCES> (7,332)
<INVENTORY> 44,186
<CURRENT-ASSETS> 86,647
<PP&E> 30,906
<DEPRECIATION> (14,606)
<TOTAL-ASSETS> 137,473
<CURRENT-LIABILITIES> 27,601
<BONDS> 43,120
0
0
<COMMON> 83
<OTHER-SE> 64,899
<TOTAL-LIABILITY-AND-EQUITY> 137,473
<SALES> 39,012
<TOTAL-REVENUES> 39,012
<CGS> 23,985
<TOTAL-COSTS> 12,235
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 940
<INCOME-PRETAX> 1,852
<INCOME-TAX> 676
<INCOME-CONTINUING> 1,176
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,176
<EPS-PRIMARY> 0.14
<EPS-DILUTED> 0.14
</TABLE>