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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-Q
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|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 29, 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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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 9, 1997 the Registrant had 8,026,298 common shares, $.01 par value,
outstanding.
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R & B, INC. AND SUBSIDIARIES
INDEX TO QUARTERLY REPORT ON FORM 10-Q
MARCH 29, 1997
Page
Part I -- FINANCIAL INFORMATION
Item 1.Consolidated Financial Statements (unaudited)
Statements of Income:
Thirteen Weeks Ended March 29, 1997 and March 30, 1996 3
Balance Sheets....................................... 4
Statements of Cash Flows............................. 5
Notes to Financial Statements........................ 6
Item 2.Management's Discussion and
Analysis of Results of Operations and
Financial Condition.............................. 7
Part II -- OTHER INFORMATION
Item 1.Legal Proceedings.................................... 11
Item 6.Exhibits and Reports on Form 8-K..................... 11
Signature .............................................. 12
Page 2 of 12
PART I. FINANCIAL INFORMATION
R&B, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
For the Thirteen Weeks Ended
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March 29, March 30,
(in thousands, except per share data) 1997 1996
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Net Sales $33,299 $32,540
Cost of goods sold 19,994 19,782
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Gross profit 13,305 12,758
Selling, general and administrative expenses 10,692 10,583
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Income from operations 2,613 2,175
Interest expense, net 1,100 967
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Income before taxes 1,513 1,208
Provision for taxes 552 445
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Net Income $ 961 $ 763
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Earnings Per Share $ 0.12 $ 0.10
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Average Shares Outstanding 8,027 7,983
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The accompanying Notes are an integral part of these Consolidated
Financial Statements.
Page 3 of 12
R&B, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
March 29, December 28,
(in thousands, except share data) 1997 1996
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(unaudited)
Assets
Current Assets:
Cash and cash equivalents $ 3,240 $ 923
Accounts receivable, less allowance for doubtful
accounts and customer credits of $8,078 and $11,305 34,388 35,134
Inventories 42,407 41,652
Deferred income taxes 2,748 2,748
Prepaids and other current assets 510 606
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Total current assets 83,293 81,063
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Property, Plant and Equipment, net 14,355 14,567
Intangible Assets 30,575 30,850
Other Assets 3,227 2,490
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Total $131,450 $128,970
=================================================== ================= =================
Liabilities and Shareholders' Equity
Current Liabilities:
Current portion of long-term debt $ 6,202 $ 6,066
Accounts payable 7,496 7,146
Accrued compensation 2,285 2,220
Other accrued liabilities 3,233 2,263
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Total current liabilities 19,216 17,695
Long-Term Debt 56,246 56,248
Deferred Income Taxes 858 858
Commitments and Contingencies
Shareholders' Equity:
Common stock, par value $.01; authorized
25,000,000 shares; issued 8,026,254 and 8,026,254 80 80
Additional paid-in capital 29,943 29,943
Retained earnings 25,107 24,146
Total shareholders' equity 55,130 54,169
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Total $131,450 $128,970
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The accompanying Notes are an integral part of these Consolidated Financial
Statements.
Page 4 of 12
R&B, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
For the Thirteen Weeks Ended
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March 29, March 30,
(in thousands) 1997 1996
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Cash Flows from Operating Activities:
Net income $ 961 $763
Adjustments to reconcile net income to cash provided by
operating activities:
Depreciation and amortization 1079 896
Provision for doubtful accounts 68 87
Provision for deferred income tax - 85
Changes in assets and liabilities, net of effects of acquisitions:
Accounts receivable 678 (4,934)
Inventories (755) (1,386)
Prepaids and other current assets 95 716
Other assets (852) 17
Accounts payable 350 4,711
Other accrued liabilities 1,035 (184)
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Cash provided by operating activities 2,659 771
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Cash Flows from Investing Activities:
Property, plant and equipment additions (476) (1,025)
Business acquisitions - (5,228)
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Cash used in investing activities (476) (6,253)
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Cash Flows from Financing Activities:
Net proceeds from revolving credit 1,650 8,525
Repayment of term loans and capitalized lease obligations (1,516) (2,496)
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Cash provided by financing activities 134 6,029
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Net Increase in Cash and Cash Equivalents 2,317 547
Cash and Cash Equivalents, Beginning of Period 923 1,247
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Cash and Cash Equivalents, End of Period $3,240 $1,794
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Supplemental Cash Flow Information
Cash paid for interest expense $ 732 $ 870
Cash paid for income taxes $ 590 $ 132
The accompanying Notes are an integral part of these Consolidated Financial
Statements.
Page 5 of 12
R&B, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THIRTEEN WEEKS ENDED MARCH 29, 1997 AND MARCH 30, 1996 (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
29, 1997 are not necessarily indicative of the results that may be expected for
the fiscal year ending December 27, 1997. 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 28, 1996.
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 29, December 28,
(in thousands) 1997 1996
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Bulk product $20,003 $19,365
Finished product 16,651 16,907
Packaging materials 5,753 5,380
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Total $42,407 $41,652
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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
29, 1997, goodwill was $28.9 million, patents were $1.5 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 1997 and 1996, respectively.
4. Earnings Per Share
In February 1997, the Financial Accounting Standards Board issued
Statement 128 (FAS 128), Earnings Per Share (EPS). This statement is effective
for both interim and annual financial statements for periods ending after
December 15, 1997. FAS 128 replaces primary and fully diluted EPS as required by
Accounting Principles Opinion No.15 (APB 15) with basic and diluted EPS,
respectively. Under the terms of this statement, basic EPS is calculated using
the weighted average shares of common stock outstanding during the applicable
period, and diluted EPS is calculated using the weighted average shares of
common stock outstanding during the applicable period and the effects of any
potentially dilutive securities such as stock options. The Company expects that
basic EPS and diluted EPS will not be materially different to EPS as previously
reported by the Company under APB 15.
Page 6 of 12
R&B, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
General
Over the periods presented, the Company has focused its efforts on providing
an expanding array of new product offerings and strengthening its relationships
with its customers. To that end, the Company has made significant investments to
increase market penetration, primarily in the form of product development,
customer service, customer credits and allowances, and strategic acquisitions.
The Company calculates its net sales by subtracting credits and allowances
from gross sales. Credits and allowances include costs for co-operative
advertising, product returns, discounts given to customers who purchase new
products for inclusion in their stores, and the cost of competitors' products
that are purchased from the customer in order to induce a customer to purchase
new product lines from the Company. The credits and allowances are designed to
increase market penetration and increase the number of product lines carried by
customers by displacing competitors' products within customers' stores and
promoting consolidation of customers' suppliers.
The introduction of new products and product lines to customers may cause
significant fluctuations from quarter to quarter in the Company's results of
operations.
Over the periods presented, the Company has increased the percentage of
products sold to its major customers, in part due to consolidation within the
automotive aftermarket. As a general rule, sales to the Company's major
customers are at lower margins than sales to other customers.
Page 7 of 12
Results of Operations
The following table sets forth, for the periods indicated, the percentage of
net sales represented by certain items in the Company's Consolidated Statements
of Income.
Percentage of Net Sales
For the Thirteen Weeks Ended
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March 29, March 30,
1997 1996
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Net sales 100.0% 100.0%
Cost of goods sold 60.0 60.8
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Gross profit 40.0 39.2
Selling, general and administrative expenses 32.1 32.5
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Income from operations 7.8 6.7
Interest expense, net 3.3 3.0
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Income before taxes 4.5 3.7
Provision for taxes 1.7 1.4
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Net income 2.9% 2.3%
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Thirteen Weeks Ended March 29, 1997 Compared to
Thirteen Weeks Ended March 30, 1996
Net sales increased to $33.3 million for the thirteen weeks ended March 29,
1997 from $32.5 million for the same period in 1996, an increase of 2.3%. This
increase resulted from increased sales in all segments of our core business.
Cost of goods sold for the thirteen weeks ended March 29, 1997 increased to
$20.0 million from $19.8 million for the same period in 1996, an increase of
1.1%. As a percent of net sales, cost of goods sold for the thirteen weeks ended
March 29, 1997 decreased to 60.0% from 60.8% for the thirteen weeks ended March
30, 1996. The decrease was primarily due to an improved sales mix of higher
margin products.
Selling, general and administrative expenses for the thirteen weeks ended
March 29, 1997 increased to $10.7 million from $10.6 million for the thirteen
weeks ended March 30, 1996, an increase of 1.0%. As a percent of net sales,
selling, general and administrative expenses decreased to 32.1% from 32.5%. This
decrease was the result of leveraging higher sales against a fixed expense base.
Interest expense, net, increased to $1.1 million for the thirteen weeks
ended March 29, 1997 from $1.0 million for the thirteen weeks ended March 30,
1996. This increase was the result of additional interest expense on borrowings
for increased working capital requirements.
A provision for income taxes of $0.6 million was recorded for the thirteen
weeks ended March 29, 1997 and $0.4 million was recorded for the thirteen weeks
ended March 30, 1996. The Company's effective tax rate was 36.5% for the
thirteen weeks ended March 29, 1997 and 36.9% for the thirteen weeks ended March
30, 1996. The decrease in the effective tax rate is primarily the result of
lower state taxes.
Net income increased to $1.0 million for the thirteen weeks ended March 29,
1997 from $0.8 million for the thirteen weeks ended March 30, 1996. As a
percentage of net sales, net income increased to 2.9% for the thirteen week
period in 1997 from 2.3% for the same period in 1996.
Page 8 of 12
Liquidity and Capital Resources
The Company has financed its growth primarily through cash flow from its
operations and borrowings under its credit facility. Working capital was $64.1
million as of March 29, 1997 and $56.4 million as of March 30, 1996. 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 $2.7 million for the thirteen
weeks ended March 29, 1997 and $0.8 million for the thirteen weeks ended March
30, 1996. These amounts represent net income plus depreciation and amortization
less changes in working capital. During 1997, the most significant changes were
increases in other accrued liabilities, other assets and inventories. During
1996, the most significant changes were increases in accounts receivable,
accounts payable and inventories.
Net cash used in investing activities amounted to $0.5 million and $6.3
million for the thirteen weeks ended March 29, 1997 and March 30, 1996,
respectively. In 1997, additions to property, plant and equipment accounted for
all of the cash used. In 1996, the acquisition of MPI and and additions to
property, plant and equipment including progress payments for the addition at
our Warsaw, Kentucky facility represented nearly all of the total investing
activities.
Net cash provided by financing activities amounted to $0.1 million and $6.0
million for the thirteen weeks ended March 29, 1997 and March 30, 1996,
respectively. In 1997, proceeds from the Company's revolving credit facility
nearly equaled the repayment of term loans and capitalized lease obligations. In
1996, cash was received from the Company's credit facility, offset somewhat by
the payoff of the debt assumed with the acquisition of MPI and the continued
paydown of capitalized lease obligations.
The Acquisition of MPI. MPI was acquired with the payment of cash
consideration in the amount of approximately $5.2 million and the assumption of
certain liabilities, including approximately $2.3 million in the assumption of
bank debt.
Commercial Borrowings. In January 1995, the Company expanded its credit
facility to $60.0 million from a syndicate of commercial banks comprised of
CoreStates Bank, N.A. (agent), The Fifth Third Bank N.A. and First Chicago NBD
Corporation (formerly NBD Bank). The credit facility consists of a term portion
of $25.0 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 $3.0 million in 1997 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 15, 1998. 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 beginning in May 1996.
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.
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 29, 1997, the Company had borrowings
of $30.1 million under the term loans and $25.5 million under the revolving
facility and has $9.5 million of borrowing capacity under the revolving
facility.
Page 9 of 12
Industrial Revenue Bonds. Construction of the Company's Warsaw, Kentucky
facility in 1990 was funded by the Bonds. The Bonds bear interest at an annual
rate of 4% payable monthly and require annual principal payments of $300,000 or
$350,000 in alternating years with the final payment due in July, 2009.
Capitalized Leases. The Company's leases for its Pennsylvania and Georgia
facilities are recorded as capitalized leases in the Company's financial
statements.
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 10 of 12
PART II: OTHER INFORMATION
Item 1. Legal Proceedings
In addition to commitments and obligation which arise in the ordinary course
of business, the Company is subject to various claims and legal actions from
time to time involving contracts, competitive practices, trademark rights,
product liability claims and other matters arising out of the conduct of the
Company's business.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit No. Description
27 Financial Data Schedule
(b) Reports on Form 8-K
None
Page 11 of 12
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
R & B, INC.
Date May 13, 1997 \s\ Richard Berman
Richard Berman
President
Date May 13, 1997 \s\ Malcolm Walter
Malcolm Walter
Chief Financial Officer
Page 12 of 12