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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 June 28, 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 August 1, 1997 the Registrant had 8,026,384 common shares, $.01 par value,
outstanding.
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R & B, INC.
INDEX TO QUARTERLY REPORT ON FORM 10-Q
June 28, 1997
Page
Part I -- FINANCIAL INFORMATION
Item 1.Consolidated Financial Statements (unaudited)
Statements of Income:
Thirteen Weeks Ended June 28, 1997 and June 29, 1996 3
Twenty-six Weeks Ended June 28, 1997 and June 29, 1996 4
Balance Sheets....................................... 5
Statements of Cash Flows............................. 6
Notes to Financial Statements........................ 7
Item 2.Management's Discussion and
Analysis of Financial Condition and
Results of Operations............................ 8
Part II -- OTHER INFORMATION
Item 1.Legal Proceedings.................................... 12
Item 6.Exhibits and Reports on Form 8-K..................... 12
Signature .............................................. 13
Page 2 of 13
PART I. FINANCIAL INFORMATION
R&B, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
For the Thirteen Weeks Ended
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June 28, June 29,
(in thousands, except per share data) 1997 1996
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Net Sales $40,959 $39,678
Cost of goods sold 25,045 24,510
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Gross profit 15,914 15,168
Selling, general and administrative expenses 11,310 11,125
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Income from operations 4,604 4,043
Interest expense, net 1,055 1,023
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Income before taxes 3,549 3,020
Provision for taxes 1,296 1,098
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Net Income $ 2,253 $ 1,922
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Earnings Per Share $ 0.28 $ 0.24
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Average Shares Outstanding 8,026 7,983
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The accompanying Notes are an integral part of these Consolidated
Financial Statements.
Page 3 of 13
R&B, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
For the Twenty-six Weeks Ended
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June 28, June 29,
(in thousands, except per share data) 1997 1996
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Net Sales $74,258 $72,218
Cost of goods sold 45,039 44,292
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Gross profit 29,219 27,926
Selling, general and administrative expenses 22,002 21,708
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Income from operations 7,217 6,218
Interest expense, net 2,155 1,990
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Income before taxes 5,062 4,228
Provision for taxes 1,848 1,543
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Net Income $ 3,214 $ 2,685
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Earnings Per Share $ 0.40 $ 0.34
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Average Shares Outstanding 8,026 7,983
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The accompanying Notes are an integral part of these Consolidated
Financial Statements.
Page 4 of 13
R&B, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
June 28, December 28,
(in thousands, except share data) 1997 1996
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(unaudited)
Assets
Current Assets:
Cash and cash equivalents $ 1,932 $ 923
Accounts receivable, less allowance for doubtful
accounts and customer credits of $9,400 and $11,305 36,806 35,134
Inventories 37,808 41,652
Deferred income taxes 2,748 2,748
Prepaids and other current assets 439 606
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Total current assets 79,733 81,063
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Property, Plant and Equipment, net 15,024 14,567
Intangible Assets 30,298 30,850
Other Assets 2,486 2,490
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Total $127,541 $128,970
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Liabilities and Shareholders' Equity
Current Liabilities:
Current portion of long-term debt $ 6,338 $ 6,066
Accounts payable 8,319 7,146
Accrued compensation 2,535 2,220
Other accrued liabilities 3,012 2,263
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Total current liabilities 20,204 17,695
Long-Term Debt 49,095 56,248
Deferred Income Taxes 858 858
Commitments and Contingencies
Shareholders' Equity:
Common stock, par value $.01; authorized
25,000,000 shares; issued 8,026,364 and 8,026,254 80 80
Additional paid-in capital 29,944 29,943
Retained earnings 27,360 24,146
Total shareholders' equity 57,384 54,169
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Total $127,541 $128,970
=================================================== ================= =================
The accompanying Notes are an integral part of these Consolidated Financial
Statements.
Page 5 of 13
R&B, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
For the Twenty-six Weeks Ended
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June 28, June 29,
(in thousands) 1997 1996
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Cash Flows from Operating Activities:
Net income $3,214 $2,685
Adjustments to reconcile net income to cash provided by
operating activities:
Depreciation and amortization 2,196 2,044
Provision for doubtful accounts 183 87
Provision for deferred income tax - 85
Changes in assets and liabilities, net of effects of acquisitions:
Accounts receivable (1,855) (8,834)
Inventories 3,844 (3,613)
Prepaids and other current assets 167 846
Other assets (226) 38
Accounts payable 1,173 5,069
Other accrued liabilities 1,064 797
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Cash provided by (used in) operating activities 9,760 (796)
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Cash Flows from Investing Activities:
Property, plant and equipment additions (1,871) (2,739)
Business acquisitions - (5,228)
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Cash used in investing activities (1,871) (7,967)
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Cash Flows from Financing Activities:
ACTIVITIES: a
Net (repayments of) proceeds from revolving credit (3,850) 875
Proceeds from term loans - 12,000
Repayment of term loans and capitalized lease obligations (3,031) (3,662)
Proceeds from common stock issuances 1 14
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Cash (used in) provided by financing activities (6,880) 9,227
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Net Increase in Cash and Cash Equivalents 1,009 464
Cash and Cash Equivalents, Beginning of Period 923 1,247
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Cash and Cash Equivalents, End of Period $1,932 $1,711
============================================================== ================== ===================
Supplemental Cash Flow Information
Cash paid for interest expense $1,971 $1,446
Cash paid for income taxes $1,290 $863
The accompanying Notes are an integral part of these Consolidated Financial
Statements.
Page 6 of 13
R&B, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE TWENTY-SIX WEEKS ENDED JUNE 28, 1997 AND JUNE 29, 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 twenty-six week period ended June
28, 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:
June 28, December 28,
(in thousands) 1997 1996
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Bulk product $19,454 $19,365
Finished product 13,048 16,907
Packaging materials 5,306 5,380
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Total $37,808 $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 June 28,
1997, goodwill was $28.7 million, patents were $1.4 million and the non-compete
covenant was $0.2 million. Amortization of these assets was $0.6 million and
$0.6 million in the twenty-six weeks of 1997 and 1996, respectively.
4. Net Income Per Common 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 7 of 13
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 8 of 13
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
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For the Thirteen Weeks Ended For the Twenty-six Weeks Ended
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June 28, June 29, June 28, June 29,
1997 1996 1997 1996
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Net sales 100.0% 100.0% 100.0% 100.0%
Cost of goods sold 61.1 61.8 60.7 61.3
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Gross profit 38.9 38.2 39.3 38.7
Selling, general and
administrative expenses 27.6 28.0 29.6 30.1
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Income from operations 11.3 10.2 9.7 8.6
Interest expense, net 2.6 2.6 2.9 2.8
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Income before taxes 8.7 7.6 6.8 5.8
Provision for taxes 3.2 2.8 2.5 2.1
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Net income 5.5% 4.8% 4.3% 3.7%
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Thirteen Weeks Ended June 28, 1997 Compared to
Thirteen Weeks Ended June 29, 1996
Net sales increased to $41.0 million for the thirteen weeks ended June 28,
1997 from $39.7 million for the same period in 1996, an increase of 3.2%. This
increase resulted primarily from increased sales in the retail segment of our
core business.
Cost of goods sold for the thirteen weeks ended June 28, 1997 increased to
$25.0 million from $24.5 million for the same period in 1996, an increase of
2.2%. As a percent of net sales, cost of goods sold for the thirteen weeks ended
June 28, 1997 decreased to 61.1% from 61.8% for the same period in 1996. This
decrease was the result of improved efficiency in the packaging of the Company's
products.
Selling, general and administrative expenses for the thirteen weeks ended
June 28, 1997 increased to $11.3 million from $11.1 million for the thirteen
weeks ended June 29, 1996, an increase of 1.7%. As a percent of net sales,
selling, general and administrative expenses for the thirteen weeks ended June
28, 1997 decreased to 27.6% from 28.0% for the same period in 1996. 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 June 28, 1997 from $1.0 million for the thirteen weeks ended June 29,
1996. This increase was the result of additional interest expense on borrowings
for increased working capital requirements.
A provision for income taxes of $1.3 million was recorded for the thirteen
weeks ended June 28, 1997 and $1.1 million was recorded for the thirteen weeks
ended June 29, 1996. The Company's effective tax rate remained essentially
unchanged at 36.5% for the thirteen weeks ended June 28, 1997 and 36.4% for the
thirteen weeks ended June 29, 1996.
Net income increased to $2.3 million for the thirteen weeks ended June 28,
1997 from $1.9 million for the thirteen weeks ended June 29, 1996, an increase
of 17.2%. As a percentage of net sales, net income increased to 5.5% for the
thirteen week period in 1997 from 4.8% for the same period in 1996.
Page 9 of 13
Twenty-six Weeks Ended June 28, 1997 Compared to
Twenty-six Weeks Ended June 29, 1996
Net sales increased to $74.3 million for the twenty-six weeks ended June 28,
1997 from $72.2 million for the same period in 1996, an increase of 2.8%. This
increase resulted primarily from increased sales in the retail segment of the
Company's business.
Cost of goods sold for the twenty-six weeks ended June 28, 1997 increased to
$45.0 million from $44.3 million for the same period in 1996, an increase of
1.7%. As a percent of net sales, cost of goods sold for the twenty-six weeks
ended June 28, 1997 decreased to 60.7% from 61.3% for the same period in 1996.
The decrease was primarily the result of improved efficiency in the packaging of
the Company's products.
Selling, general and administrative expenses for the twenty-six weeks ended
June 28, 1997 increased to $22.0 million from $21.7 million for the twenty-six
weeks ended June 29, 1996, an increase of 1.4%. As a percent of net sales,
selling, general and administrative expenses for the twenty-six weeks ended June
28, 1997 decreased to 29.6% from 30.1% for the same period in 1996. This
decrease was the result of leveraging higher sales against a fixed expense base.
Interest expense, net, increased to $2.2 million for the twenty-six weeks
ended June 28, 1997 from $2.0 million for the twenty-six weeks ended June 29,
1996. This increase was the result of additional interest expense on borrowings
for increased working capital requirements.
A provision for income taxes of $1.8 million was recorded for the twenty-six
weeks ended June 28, 1997 and $1.5 million was recorded for the twenty-six weeks
ended June 29, 1996. The Company's effective tax rate was 36.5% for the
twenty-six weeks ended June 28, 1997 and June 29, 1996.
Net income increased to $3.2 million for the twenty-six weeks ended June 28,
1997 from $2.7 million for the twenty-six weeks ended June 29, 1996. As a
percentage of net sales, net income increased to 4.3% for the twenty-six week
period in 1996 from 3.7% for the same period in 1996.
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 $59.5
million as of June 28, 1997 and $58.4 million as of June 29, 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 $9.8 million for the
twenty-six weeks ended June 28, 1997. Net cash used in operating activities was
$0.8 million for the twenty-six weeks ended June 29, 1996. These amounts
represent net income plus depreciation and amortization less changes in working
capital. During 1997, the most significant changes were increases in accounts
receivable, accounts payable and other accrued liabilities offset somewhat by a
decrease in inventories. During 1996, the most significant changes were
increases in accounts receivable, accounts payable, and inventories.
Net cash used in investing activities amounted to $1.9 million for the
twenty-six weeks ended June 28, 1997 and $8.0 million for the twenty-six weeks
ended June 29, 1996. In 1997, the additions to property, plant and equipment
accounted for all of the cash used in investing activities. In 1996, the
acquisition of MPI and additions to property, plant and equipment including
progress payments for the addition at our Warsaw, Kentucky facility represented
nearly all of the total investing activities.
Net cash used in financing activities amounted to $6.9 million for the
twenty-six weeks ended June 28, 1997 and net cash provided by financing
activities amounted to $9.2 million for the twenty-six weeks ended June 29,
1996. In 1997, cash was used to paydown a portion of the revolving credit
facility and the continued paydown of term debt and capitalized lease
obligations. In 1996, cash was received from the Company's credit facility and a
new term loan, offset somewhat by the payoff of the debt assumed with the
acquisition of MPI and the continued pay down of term debt and capitalized lease
obligations.
Page 10 of 13
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.
Commercial Borrowings. The Company's credit facility is $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.
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 June 28, 1997, the Company had borrowings of
$28.7 million under the term loans and $20.0 million under the revolving
facility and has $13.0 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.
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.
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 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 and those factors discussed in
"Business - Investment Considerations" included in the Company's Annual Report
on Form 10-K for the year ended December 28, 1996.
Page 11 of 13
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 12 of 13
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 August 1, 1997 Richard Berman
Richard Berman
President
Date August 1, 1997 Malcolm Walter
Malcolm Walter
Chief Financial Officer and
Principal Accounting Officer
Page 13 of 13