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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 27, 1999
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 5, 1999 the Registrant had 8,083,645 common shares, $.01 par value,
outstanding.
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R & B, INC. AND SUBSIDIARIES
INDEX TO QUARTERLY REPORT ON FORM 10-Q
MARCH 27, 1999
Page
Part I -- FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements (unaudited)
Statements of Income:
Thirteen Weeks Ended March 27, 1999 and
March 28, 1998 .................................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)
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For the Thirteen Weeks Ended
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March 27, March 28,
(in thousands, except per share data) 1999 1998
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Net Sales $55,946 $39,012
Cost of goods sold 34,261 23,985
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Gross profit 21,685 15,027
Selling, general and administrative expenses 17,901 12,235
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Income from operations 3,784 2,792
Interest expense, net 1,706 940
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Income before taxes 2,078 1,852
Provision for taxes 727 676
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Net Income $ 1,351 $1,176
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Earnings Per Share:
Basic $0.16 $0.14
Diluted 0.16 0.14
Average Shares Outstanding:
Basic 8,348 8,318
Diluted 8,381 8,409
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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
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March 27, December 26,
(in thousands, except share data) 1999 1998
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(unaudited)
Assets
Current Assets:
Cash and cash equivalents $ 1,034 $ 915
Accounts receivable, less allowance for doubtful
accounts and customer credits of $7,971 and $9,715 60,075 55,585
Inventories 79,252 68,401
Deferred income taxes 1,674 1,674
Prepaids and other current assets 1,431 861
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Total current assets 143,466 127,436
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Property, Plant and Equipment, net 21,003 20,761
Intangible Assets 33,256 33,640
Other Assets 2,125 2,111
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Total $199,850 $183,948
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Liabilities and Shareholders' Equity
Current Liabilities:
Current portion of long-term debt $ 2,663 $ 3,089
Accounts payable 21,635 18,309
Accrued compensation 2,352 2,652
Other accrued liabilities 4,899 5,766
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Total current liabilities 31,549 29,816
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Long-Term Debt 92,754 80,004
Deferred Income Taxes 2,514 2,514
Commitments and Contingencies
Shareholders' Equity:
Common stock, par value $.01; authorized
25,000,000 shares; issued 8,350,629 and 8,344,082 83 83
Additional paid-in capital 33,175 33,133
Cumulative translation adjustments 8 (18)
Retained earnings 39,767 38,416
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Total shareholders' equity 73,033 71,614
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Total $199,850 $183,948
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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)
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For the Thirteen Weeks Ended
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March 27, March 28,
(in thousands) 1999 1998
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Cash Flows from Operating Activities:
Net income $ 1,351 $ 1,176
Adjustments to reconcile net income to cash (used in)
provided byoperating activities:
Depreciation and amortization 1,553 1,156
Provision for doubtful accounts 189 132
Changes in assets and liabilities, net of effects of acquisitions:
Accounts receivable (4,679) 282
Inventories (10,851) (3,212)
Prepaids and other current assets (570) 980
Other assets (28) (44)
Accounts payable 3,352 2,013
Other accrued liabilities (1,167) 1,301
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Cash(used in) provided by operating activities (10,850) 3,784
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Cash Flows from Investing Activities:
Property, plant and equipment additions (1,397) (573)
Business acquisitions, net of cash acquired - (980)
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Cash used in investing activities (1,397) (1,553)
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Cash Flows from Financing Activities:
Net proceeds of revolving credit 12,750 500
Repayment of term loans and capitalized lease obligations (426) (1,866)
Proceeds from common stock issuances 42 12
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Cash provided by (used in) financing activities 12,366 (1,354)
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Net Increase in Cash and Cash Equivalents 119 877
Cash and Cash Equivalents, Beginning of Period 915 1,601
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Cash and Cash Equivalents, End of Period $1,034 $2,478
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Supplemental Cash Flow Information
Cash paid for interest expense $ 1,493 $ 834
Cash paid for income taxes $ 1,521 $ 32
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 27, 1999 AND MARCH 28, 1998
(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
27, 1999 are not necessarily indicative of the results that may be expected for
the fiscal year ending December 25, 1999. 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 26, 1998.
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 27, December 26,
(in thousands) 1999 1998
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Bulk product $29,572 $31,181
Finished product 43,847 31,445
Packaging materials 5,833 5,775
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Total $79,252 $68,401
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3. Intangible Assets
Intangible assets consist primarily of goodwill which is amortized over
a period of 40 years. Total accumulated amortization as of March 27, 1999 and
March 28, 1998 was $4.8 million and $3.3 million, respectively. Amortization
expense of these assets was $0.4 million and $0.3 million in the first quarter
of 1999 and 1998, respectively.
4. Earnings Per Share
Earnings Per share is computed under Statement of Financial Accounting
Standards No. 128, "Earnings Per Share;" The Company has included basic and
diluted earnings per share on the face of the Statements of Income for each
period presented. Weighted average shares for "diluted" earnings per share
includes the assumption of the exercise of all potentially dilutive securities
("in the money" stock options).
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 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.
In January of 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 global distributor of replacement automotive parts,
primarily Volvo and Saab.
In September 1998, the Company began its acquisition of selective assets of
the Service Line Division ("Champ") of Standard Motor Products, Inc. Champ
includes the Champ Service Line, Pik-A-Nut and Everco. The acquisition was
completed in stages with the final stage (Everco) occurring in January 1999.
In October 1998, the Company acquired the assets of Allparts, Inc.
Headquartered in Louisiana, Missouri, Allparts is a leading supplier of
automotive hydraulic brake parts to the automotive aftermarket.
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 27, March 28,
1999 1998
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Net sales 100.0% 100.0%
Cost of goods sold 61.3 61.5
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Gross profit 38.7 38.5
Selling, general and administrative expenses 32.0 31.4
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Income from operations 6.7 7.1
Interest expense, net 3.0 2.4
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Income before taxes 3.7 4.7
Provision for taxes 1.3 1.7
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Net Income 2.4% 3.0%
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Thirteen Weeks Ended March 27, 1999 Compared to
Thirteen Weeks Ended March 28, 1998
Net sales increased to $55.9 million for the thirteen weeks ended March 27,
1999 from $39.0 million for the same period in 1998, an increase of 43.4%. The
increase resulted from increased sales in all segments of our core business and
from recent acquisitions.
Cost of goods sold for the thirteen weeks ended March 27, 1999 increased to
$34.3 million from $24.0 million for the same period in 1998, an increase of
42.8%. As a percent of net sales, cost of goods sold for the thirteen weeks
ended March 27, 1999 decreased to 61.3% from 61.5% for the thirteen weeks ended
March 27, 1998. This improvement resulted primarily from a reduction in the
material cost component of cost of goods sold.
Selling, general and administrative expenses for the thirteen weeks ended
March 27, 1999 increased to $17.9 million from $12.2 million for the thirteen
weeks ended March 28, 1998, an increase of 46.3%. As a percent of net sales,
selling, general and administrative expenses increased to 32.0% from 31.4%. This
increase resulted primarily from increased labor and freight costs associated
with shipments of products to customers.
Interest expense, net, increased to $1.7 million for the thirteen weeks
ended March 27, 1999 from $0.9 million for the thirteen weeks ended March 28,
1998. This increase resulted from higher average debt levels in the first
quarter of 1999 relating to the funding of acquisitions made by the Company
during 1998 and the expansion in working capital assets.
A provision for income taxes of $0.7 million was recorded for the thirteen
weeks ended March 27, 1999 and March 28, 1998. The decrease in the Company's
effective tax rate from 36.5% in 1998 to 35.0% in 1999 resulted primarily from
lower foreign tax rates.
Liquidity and Capital Resources
The Company has financed its growth through the combination of cash flow
from its operations, issuance of senior notes and borrowings under its credit
facilities. Working capital was $111.9 million as of March 27, 1999 and $59.0
million as of March 28, 1998. 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.
Page 8 of 12
Net cash used in operating activities was $10.9 million for the thirteen
weeks ended March 27, 1999 and net cash provided was $3.8 million for the
thirteen weeks ended March 28, 1998. These amounts represent net income plus
depreciation and amortization less changes in working capital. During 1999, the
most significant changes were increases in inventories, accounts receivable and
accounts payable. During 1998, the most significant changes were increases in
inventories, accounts payable and other accrued liabilities.
Net cash used in investing activities amounted to $1.4 million and $1.6
million for the thirteen weeks ended March 27, 1999 and March 28, 1998,
respectively. In 1999, additions to plant and equipment accounted for the
investing activities. In 1998, the acquisition of Scan-Tech and additions to
property, plant and equipment accounted for the investing activities.
Net cash provided by financing activities amounted to $12.4 million and net
cash used was $1.4 million for the thirteen weeks ended March 27, 1999 and March
28, 1998, respectively. In 1999, borrowings under the line of credit accounted
for the majority of the funds provided. In 1998, repayments of term loans and
capitalized leases was partially offset by advances under the Company's
revolving credit facility.
The Acquisition of Scan-Tech. In January 1998, Scan-Tech was acquired with
the payment of $1 million in cash, up to 350,000 shares of the Company's common
stock and assumption of certain liabilities including approximately $0.8 million
in bank debt.
The Acquisition of Champ. In September 1998, the Company began its
acquisition of selective assets of Champ from Standard Motor Products, Inc. for
approximately $2.3 million representing the net asset value of inventories. The
acquisition was completed in stages with the final stage (Everco) occurring in
January 1999 and requiring a payment of approximately $0.3 million representing
the net asset value of inventories.
The Acquisition of Allparts. In October 1998, the Company acquired the
assets of Allparts from JPE, Inc., for approximately $10.1 million in cash.
Senior Notes. In August 1998, the Company completed a private placement
of $60 million in 6.81% Senior Notes due August 21, 2008 on an unsecured basis.
The ten-year Notes bear a 6.81 percent fixed interest rate, payable quarterly,
with an initial four-year interest only period.
Revolving Credit Facility. In connection with the Notes, the Company amended
its $35 million revolving credit facility with First Union National Bank and
National City Bank. As amended, the commitment for the line was extended for a
five-year term on an unsecured basis with interest at Libor plus 75 basis
points. Proceeds from the Notes were used, among other things, to paydown the
term debt portions of the bank credit facilities previously advanced to the
Company by the bank syndicate. Borrowings under the revolving credit facility
amounted to $26.3 million at March 27, 1999 and to $13.5 million at December 26,
1998.
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. In addition, in 1998 the Company entered into a sale/leaseback
transaction relating to its new computer system in the amount of $4.3 million.
Foreign Currency Fluctuations. Approximately 45% 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.
Page 9 of 12
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"). This New System, installed in 1998, is 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
replaces the majority of the Company's previous 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. The most significant of these are
the Company's Human Resource, payroll and time keeping systems which were
replaced with a combination of purchased software and third party services
during the first quarter of 1999.
Based on present information, the Company believes that it will be able to
achieve Year 2000 compliance through a combination of the New System and
modification to other Programs, however, no assurance can be given that these
efforts will be successful. The investment in capital expenditures to implement
the New System and the Human Resources, payroll and time keeping systems was
approximately $4.9 million and the Company estimates that the expenses
associated with modification of other Programs will not be material.
The Company maintains contingency plans for computer failures, power
outages, natural disasters, etc. Year 2000 contingency plans for
mission-critical systems are being developed and will be integrated with the
existing plans where appropriate by December 1999.
Further, in the event that any of the Company's significant suppliers or
customers do not successfully and timely achi e 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.
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; 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 the Company's Annual Report on Form 10-K under "Business -
Investment Considerations."
Quantitative and Qualitative Disclosure about Material Risk
The Company's market risk is the potential loss arising from adverse changes
in interest rates. With the exception of the Company's revolving credit
facility, long-term debt obligations are at fixed interest rates and denominated
in U.S. dollars. The Company manages its interest rate risk by monitoring trends
in interest rates as a basis for determining whether to enter into fixed rate or
variable rate agreements. Market risk is estimated as the potential increase in
fair value of the company's long- term debt obligations resulting from a
hypothetical one-percent decrease in interest rates and amounts to approximately
$3.6 million over the term of the debt.
Although the company continues to evaluate derivative financial instruments
to manage foreign currency exchange rate changes, the Company does not currently
hold derivatives for managing these risks of for trading purposes.
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 11, 1999 \s\ Richard Berman
Richard Berman
President
Date May 11, 1999 \s\ Malcolm Walter
Malcolm Walter
Chief Financial Officer and
Principal Accounting Officer
Page 12 of 12