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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K/A
(Amendment No.1)
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(Mark One)
|X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 25, 2004
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________ to ____________
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Commission file number 0-18914
R&B, INC.
(Exact name of Registrant as specified in its charter)
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IRS - Employer Identification No. 23-2078856
3400 East Walnut Street, Colmar, Pennsylvania 18915
(Address of principal executive offices) (Zip Code)
(215) 997-1800
(Registrant's telephone number, including area code)
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Securities Registered pursuant to Section 12(b)
of the Act: NONE
Securities Registered pursuant to Section 12(g)
of the Act: Common Stock, $0.01 Par Value
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Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days. Yes |X| No |_|
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K (ss.229.405 of this chapter) is not contained herein, and will
not be contained, to the best of Registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. |_|
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Exchange Act Rule 12b-2). Yes |X| No |_|
Indicate by check mark wheter the Registrant is a shell company (as defined by
Rule 12b-2 of the Exchange Act). Yes [_] No [X]
As of March 4, 2005 the Registrant had 8,959,297 common stock, $.01 par value,
outstanding. The aggregate market value of voting and non-voting common equity
held by non-affiliates of the Registrant was $128,794,048. [Please note that
the aggregate market value should be calculated on the basis of the price at
which common equity was last sold, or the average bid and asked price of such
common equity, as of the last business day of the Registrant's most recently
completed second fiscal quarter, i.e. June 26, 2004]
EXPLANATORY NOTE
R&B, Inc. is filing this amendment to the annual report Form 10-K for the year
ended December 25, 2004 solely to correct certain typographical errors on the
cover page and in the certifications required by the rules and regulations of
the Securities and Exchange Commission implementing Section 302 of the
Sarbanes-Oxley Act of 2002. There were no other changes to the annual report
included in this Form 10-K/A (Amendment No. 1) other than the previously
described changes to the cover page and certifications included as Exhibits
31.1 and 31.2 hereof.
DOCUMENTS INCORPORATED BY REFERENCE
PART III - Certain information from the Registrant's definitive Proxy Statement
for its Annual Meeting of Shareholders presently scheduled to be held on May 19,
2005.
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R & B, INC.
INDEX TO ANNUAL REPORT ON FORM 10-K
DECEMBER 25, 2004
Part I
Page
Item 1. Business......................................................... 3
General.................................................... 3
The Automotive Aftermarket................................. 3
Products................................................... 4
Product Development........................................ 5
Sales and Marketing........................................ 5
Manufacturing.............................................. 6
Packaging, Inventory and Shipping.......................... 7
Competition................................................ 7
Proprietary Rights......................................... 7
Employees.................................................. 7
Risk Factors............................................... 8
Available Information...................................... 9
Item 2. Properties...................................................... 9
Item 3. Legal Proceedings............................................... 10
Item 4. Submission of Matters to a Vote of Security Holders............. 10
Item 4.1 Certain Executive Officers of the Registrant..................... 10
Part II
Item 5. Market for Registrant's Common Equity and Related
Shareholder Matters.............................................. 11
Item 6. Selected Financial Data.......................................... 11
Item 7. Management's Discussion and Analysis of
Results of Operations and Financial Condition.................... 12
Item 7A Quantitative and Qualitative Disclosure about Market Risk......... 19
Item 8. Consolidated Financial Statements and Supplementary Data......... 19
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure.............................. 35
Item 9A Controls and Procedures........................................... 35
Part III
Item 10. Directors and Executive Officers of the Registrant.............. 37
Item 11. Executive Compensation.......................................... 37
Item 12. Security Ownership of Certain Beneficial Owners and Management...37
Item 13. Certain Relationships and Related Transactions.................. 38
Item 14. Principal Accountant Fees and Services.......................... 38
Part IV
Item 15. Exhibits and Financial Statement Schedules...................... 38
Signatures................................................. 41
Financial Statement Schedule............................... 42
Page 2 of 42
PART I
Item 1. Business.
General
R&B, Inc. was incorporated in Pennsylvania in October 1978. As used
herein, unless the context otherwise requires, "R&B" or the "Company" refers to
R&B, Inc. and its subsidiaries.
The Company is a leading supplier of original equipment dealer
"exclusive" automotive replacement parts, fasteners and service line products
primarily for the automotive aftermarket, a market segment which it helped to
establish. The Company designs, packages and markets over 70,000 different
automotive replacement parts, fasteners and service line products manufactured
to its specifications, with approximately 35% consisting of original equipment
dealer "exclusive" parts and fasteners. Original equipment dealer "exclusive"
parts are those which were traditionally available to consumers only from
original equipment manufacturers or salvage yards and include, among other
parts, intake manifolds, exhaust manifolds, oil cooler lines, window regulators,
radiator fan assemblies, power steering pulleys and harmonic balancers.
Fasteners include such items as oil drain plugs and wheel lug nuts.
Approximately 90% of the Company's products are sold under its brand names and
the remainder are sold for resale under customers' private labels, other brands
or in bulk. The Company's products are sold primarily in the United States
through automotive aftermarket retailers (such as AutoZone, Advance and
O'Reilly), national, regional and local warehouse distributors (such as Carquest
and NAPA) and specialty markets including parts manufacturers for resale under
their own private labels (such as Dana and Federal Mogul) and salvage yards.
Through its Scan-Tech subsidiary, the Company is increasing its international
distribution of automotive replacement parts, with sales into Europe, the Middle
East and the Far East.
The Automotive Aftermarket
The automotive replacement parts market is made up of two components:
parts for passenger cars and light trucks, which accounted for sales of
approximately $190 billion in 2004, and parts for heavy duty trucks, which ac
counted for sales of approximately $63 billion in 2004. The Company currently
markets products primarily for passenger cars and light trucks.
Two distinct groups of end-users buy replacement automotive parts: (i)
individual consumers, who purchase parts to perform "do-it-yourself" repairs on
their own vehicles; and (ii) professional installers, which include automotive
repair shops and the service departments of automobile dealers. The individual
consumer market is typically supplied through retailers and through the retail
arms of warehouse distributors. Automotive repair shops generally purchase parts
through local independent parts wholesalers and through national warehouse
distributors. Automobile dealer service departments generally obtain parts
through the distribution systems of automobile manufacturers and specialized
national and regional warehouse distributors.
The increasing complexity of automobiles and the number of different
makes and models of automobiles have resulted in a significant increase in the
number of products required to service the domestic and foreign automotive
fleet. Accordingly, the number of parts required to be carried by retailers and
wholesale distributors has increased substantially. These pressures to include
more products in inventory and the significant consolidation among distributors
of automotive replacement parts have in turn resulted in larger distributors.
Retailers and others who purchase aftermarket automotive repair and
replacement parts for resale are constrained to a finite amount of space in
which to display and stock products. Thus, the reputation for quality, customer
service and line profitability which a supplier enjoys is a significant factor
in a purchaser's decision as to which product lines to carry in the limited
space available. Further, because of the efficiencies achieved through the
ability to order all or part of a complete line of products from one supplier
(with possible volume discounts), as opposed to satisfying the same requirements
through a variety of different sources, retailers and other purchasers of
automotive parts seek to purchase products from fewer but stronger suppliers.
Page 3 of 42
Products
The Company sells over 70,000 different automotive replacement parts,
fasteners and service line products to meet a variety of needs, including
original equipment dealer "exclusive" parts sold under the Motormite(R) family
of brands such as the HELP!(R) brand name, a comprehensive array of automotive
and hardware fasteners sold under the Dorman(R) and Pik-A-Nut(R) family of brand
names, service line products sold under the Champ(R) family of brand names and
traditional automotive replacement parts sold under the Company's other brand
names as well as under customers' private label brands. Approximately 90% of the
Company's revenues are derived from products sold under its more than seventy
brand names.
Motormite(R) - brand names within the Motormite(R) master brand represent many
of the Company's original equipment dealer "exclusive" parts, including, among
others, the following:
* HELP!(R) - An extensive array of replacement parts,
including window handles, knobs and switches, door
handles, interior trim parts, headlamp aiming
screws and retainer rings, radiator parts, battery
hold-down bolts, valve train parts and power
steering filler caps
* Conduct-Tite!(R) - Electrical connectors
* Mighty Flow!(R) - Air intake, carburetor preheater and defroster
duct hoses
* Look!(R) - Sideview mirror glass
* Speedi-Boot!TM - Constant velocity joint boots and clamps
Dorman(R) - brand names within the Dorman(R) master brand represent the
Company's automotive fasteners, original equipment dealer "exclusive" parts and
traditional replacement parts, including, among others, the following:
* Oil-Tite!(R) - Oil drain plugs and gaskets
* OE Solutions TM - Original equipment dealer
"exclusive" parts, such as intake manifolds,
exhaust manifolds, oil cooler lines, window
regulators, harmonic balances and radiator fan
assemblies
* Quick-Disconnect TM - Transmission, cooling system and fuel system
connectors
* Uni-Fit TM - Constant velocity joint boots and clamps
Champ(R) - brand names within the Champ(R) master brand represent the Company's
automotive shop supplies and accessories, including, among others, the
following:
* Metal Work!TM - A program of metal-working related
categories, including welding supplies and
accessories, cutting equipment and supplies,
abrasives and related tools and brushes for hand
and power applications
Pik-A-Nut(R) - the Pik-A-Nut (R) brand represents the Company's fasteners for
automotive retail, specialty automotive and mass merchant markets
Platinum Parts TM - the Platinum Parts TM brand represents the Company's
automotive replacement parts and supplies for salvage yards
Page 4 of 42
Brakeware(R) and Tru-Torque(R) - these brands represent the Company's hydraulic
brake parts, including wheel cylinders and related hardware
Scan-Tech TM - the Scan-Tech TM brand represents the Company's automotive
replacements parts sold internationally, and relate primarily to replacement
parts for Volvo and Saab cars and Scania trucks
The remainder of the Company's revenues are generated by the sale of
parts packaged by the Company, or others, for sale in bulk or under the private
labels of parts manufacturers (such as Dana and Federal Mogul) and national
warehouse distributors (such as Carquest and NAPA). During the years ended
December 2004, 2003 and 2002, no single product or related group of products
accounted for more than 10% of gross sales.
Product Development
Product development is central to the Company's business. The
development of a broad range of products, many of which are not conveniently or
economically available elsewhere, has in part, enabled the Company to grow to
its present size and is important to its future growth. In developing its
products, the Company's strategy has been to design and package its parts so as
to make them better and easier to install and/or use than the original parts
they replace and to sell automotive parts for the broadest possible range of
uses. Through careful evaluation, exacting design and precise tooling, the
Company is frequently able to offer products which fit a broader range of makes
and models than the original equipment parts they replace, such as an innovative
neoprene replacement oil drain plug which fits not only a variety of Chevrolet
models, but also Fords, Chryslers and a range of foreign makes. This assists
retailers and other purchasers in maximizing the productivity of the limited
space available for each class of part sold. Further, where possible, the
Company improves its parts so they are better than the parts they replace. Thus,
many of the Company's products are simpler to install or use, such as a
replacement "split boot" for a constant velocity joint that can be installed
without disassembling the joint itself and a replacement spare tire hold-down
bolt that is longer and easier to thread than the original equipment bolt it
replaced. In addition, the Company often packages different items in complete
kits to ease installation.
Ideas for expansion of the Company's product lines arise through a
variety of sources. The Company maintains an in-house product management staff
that routinely generates ideas for new parts and expansion of existing lines.
Fur ther, the Company maintains an "800" telephone number and an Internet site
for "New Product Suggestions" and receives, either directly or through its sales
force, many ideas from the Company's customers as to which types of presently
unavailable parts the ultimate consumers are seeking.
Each new product idea is reviewed by the Company's product management
staff, as well as by members of the production, sales, finance, marketing and
administrative staffs. In determining whether to produce an individual part or a
line of related parts, the Company considers the number of vehicles of a
particular model to which the part may be applied, the potential for
modifications which will allow the product to be used over a broad range of
makes and models, the average age of the vehicles in which the part would be
used and the failure rate of the part in question. This review process winnows
the many new product suggestions to those most likely to enhance the Company's
existing product lines or to support new product lines.
Sales and Marketing
The Company markets its parts to three groups of purchasers who in turn
supply individual consumers and professional installers:
(i) Approximately 46% of the Company's revenues are generated
from sales to automotive aftermarket retailers (such as AutoZone,
Advance and O'Reilly), local independent parts wholesalers
Page 5 of 42
and national general merchandise chain retailers. The Company sells some
of its products to virtually all major chains of automotive aftermarket
retailers;
(ii) Approximately 27% of the Company's revenues are generated
from sales to warehouse distributors (such as Carquest and NAPA), which
may be local, regional or national in scope, and which may also engage
in retail sales; and
(iii) The balance of the Company's revenues are generated from
international sales and sales to special markets, which include, among
others, mass merchants (such as Wal-Mart), salvage yards and the parts
distribution systems of parts manufacturers.
The Company utilizes a number of different methods to sell its products.
The Company's more than 25 person direct sales force solicits purchases of the
Company's products directly from customers, as well as managing the activities
of 15 independent manufacturer's representative agencies. The Company uses
independent manufacturer's representative agencies to help service existing
retail and warehouse distribution customers, providing frequent on-site contact.
The sales focus is designed to increase sales by adding new product lines and
expanding product selection within existing customers and secure new customers.
For certain of its major customers, and its private label purchasers, the
Company relies primarily upon the direct efforts of its sales force, who,
together with the marketing department and the Company's executive officers,
coordinate the more complex pricing and ordering requirements of these accounts.
The Company's sales efforts are not directed merely at selling
individual products, but rather more broadly towards selling groups of related
products that can be displayed on attractive Company-designed display systems,
thereby maximizing each customer's ability to present the Company's product line
within the confines of the available area.
The Company prepares a number of catalogs, application guides and
training materials designed to describe the Company's products and other
applications as well as to train the customers' salesmen in the promotion and
sale of the Company's products. Every two to three years the Company prepares a
new master catalog which lists all of its products. The catalog is updated
periodically through supplements.
The Company currently services more than 2,500 active accounts. During
2004, 2003 and 2002, two customers (AutoZone and Advance) each accounted for
more than 10% of net sales and in the aggregate accounted for 34%, 31% and 36%
of net sales, respectively.
Manufacturing
Substantially all of the products sold by the Company are manufactured
to its specifications by third parties. Because numerous contract manufacturers
are available to manufacture its products, the Company is not dependent upon the
services of any one contract manufacturer or any small group of them. No one
vendor supplies 10% or more of the Company's products. In 2004, as a percentage
of the total dollar volume of purchases made by the Company, approximately 40%
of the Company's products were purchased from various suppliers throughout the
United States and the balance of the Company's products were purchased directly
from a variety of foreign countries.
Once a new product has been developed, the Company's engineering
department produces detailed engineering drawings and prototypes which are used
to solicit bids for manufacture from a variety of vendors in the United States
and abroad. After a vendor is selected, tooling for a production run is produced
by the vendor at the Company's expense. A pilot run of the product is produced
and subjected to rigorous testing by the Company's engineering department and,
on occasion, by outside testing laboratories and facilities in order to evaluate
the precision of manufacture and the resiliency and structural integrity of the
materials used. If acceptable, the product then moves into full production.
Page 6 of 42
Packaging, Inventory and Shipping
Finished products are received at one or more of the Company's
facilities, depending on the type of part. Samples of each shipment are tested
upon receipt. If cleared, these shipments of finished parts are logged into the
Company's computerized production tracking systems and staged for packaging.
The Company employs a variety of custom-designed packaging machines for
"blister packaging," in which individual parts are dropped into plastic
"blister" cups to which a preprinted card backing with appropriate graphics is
sealed, and for "skinning," in which parts are pre-positioned on a printed card
backing, over which a malleable plastic "skin" is laid and fixed by vacuum- and
heat-treatment processes. In either event, the printed card contains the
Company's label (or a private label), a part number, a universal packaging bar
code suitable for electronic scanning, a description of the part and appropriate
installation instructions. Products are also sold in bulk to automotive parts
manufacturers and packagers. Computerized tracking systems, mechanical counting
devices and experienced workers combine to assure that the proper variety and
number of parts meet the correct packaging and backing materials at the
appropriate places and times to produce the required quantities of finished
products.
Completed inventory is stocked in the warehouse portions of the
Company's facilities and is organized according to historical popularity in
order to aid in retrieval for shipping. The Company strives to maintain a level
of inventory to adequately meet current customer order demand with additional
inventory to satisfy new customer orders and special programs. In the aggregate,
this has resulted in approximately a one month supply of its products, packaged
and readily available for shipment, and a two month supply of product in
finished bulk form ready for packaging.
The Company ships its products from all of its locations, either by
contract carrier, common carrier or parcel service. Products are generally
shipped to the customer's central warehouse for redistribution within their
network. In certain circumstances, at the request of the customer, the Company
ships directly to the customer's stores.
Competition
The replacement automotive parts industry is highly competitive. Various
competitive factors affecting the automotive aftermarket are price, product
quality, breadth of product line, range of applications and customer service.
Substantially all of the Company's products are subject to competition with
similar products manufactured by other manufacturers of aftermarket automotive
repair and replacement parts. Some of these competitors are divisions and
subsidiaries of companies much larger than the Company, and possess a longer
history of operations and greater financial and other resources than the
Company. Further, some of the Company's private label customers also compete
with the Company.
Proprietary Rights
While the Company takes steps to register its trademarks when possible,
it does not believe that trademark registration is generally important to its
business. Similarly, while the Company actively seeks patent protection for the
products and improvements which it develops, it does not believe that patent
protection is generally important to its business.
Employees
At December 25, 2004, the Company had 880 employees, of whom 849 were
employed full-time and 31 were employed part-time. Of these employees, 584 were
engaged in production, inventory, or quality control, 62 were in volved in
product development and brand management, 71 were employed in sales and order
entry, and the remaining 163, including the Company's 7 executive officers, were
devoted to administration, finance and strategic planning.
Page 7 of 42
No domestic employees are covered by any collective bargaining
agreement. Approximately 30 employees at the Company's Swedish subsidiary are
governed by a national union. The Company considers its relations with its
employees to be generally good.
Risk Factors
Increasing Service Life. Advancing technology and competitive pressures
have compelled original equipment automobile and parts manufacturers to use
parts with longer service lives, which are covered by longer and more
comprehensive warranties. This may have the effect of reducing demand for the
Company's products by delaying the onset of repair conditions requiring their
use.
Competition for Shelf Space. Since the amount of space available to a
retailer and other purchasers of the Company's products is limited, the
Company's products compete with other automotive aftermarket products, some of
which are entirely dissimilar and otherwise non-competitive (such as car waxes
and engine oil), for shelf and floor space. No assurance can be given that
additional space will be available in a customers' stores to support expansion
of the number of products offered by the Company.
Concentration of Sales to Certain Customers. A significant percentage of
the Company's sales have been, and will continue to be, concentrated among a
relatively small number of customers. During 2004, 2003 and 2002, two customers
(AutoZone and Advance) each accounted for more than 10% of net sales and in the
aggregate accounted for 34%, 31% and 36% of net sales, respectively. The Company
anticipates that this concentration of sales among customers will continue in
the future. The loss of a significant customer or a substantial decrease in
sales to such a customer could have a material adverse effect on the Company's
sales and operating results. See "Management's Discussion and Analysis of
Results of Operations and Financial Condition" and "Business-Sales and
Marketing."
Concentrations of Credit Risk. Financial instruments that potentially
subject the Company to concentrations of credit risk consist primarily of cash
and cash equivalents and accounts receivable. All cash equivalents and
short-term investments are managed within established guidelines which limit the
amount which may be invested with one issuer. A significant percentage of the
Company's accounts receivable have been, and will continue to be concentrated
among a relatively small number of automotive retailers and warehouse
distributors in the United States. The Company's five largest customers
accounted for 77% and 70% of total accounts receivable as of December 25, 2004
and December 27, 2003, respectively. Management continually monitors the credit
terms and credit limits to these and other customers.
Customer Terms. The automotive aftermarket has been consolidating over
the past several years. As a result, many of the Company's customers have grown
larger and therefore have more leverage in negotiations with the Company.
Recently, customers have pressed for extended payment terms and returns of slow
moving product when negotiating with the Company. While the Company does its
best to avoid such concessions, in some cases payment terms to customers have
been extended and returns of product have exceeded historical levels. The
product returns primarily affect the Company's profit levels while terms
extensions generally reduce operating cash flow and require additional capital
to finance the business. Management expects both of these trends to continue for
the foreseeable future.
Foreign Currency Fluctuations. In 2004, approximately 60% 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
fluctuations 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, the recent weakness in the dollar has resulted in pressure
from several foreign suppliers to increase prices. To the extent that the dollar
decreases in value to foreign currencies in the future or the present weakness
in the dollar continues for a sustained period of time, the price of the product
in dollars for new purchase orders may increase.
The Company makes significant purchases of product from Chinese vendors.
The Chinese Yuan exchange rate has been fixed against the U.S. Dollar since
1998. Recently, the Chinese government has been under increasing pressure
Page 8 of 42
to revalue its currency, or to make its exchange rate more flexible. Most
experts believe that the value of the Yuan would increase relative to the U.S.
Dollar if it was revalued or allowed to float. Such a move would most likely
result in an increase in the cost of products that are purchased from China.
Dependence on Senior Management. The success of the Company's business
will continue to be dependent upon Richard N. Berman, Chairman of the Board,
President and Chief Executive Officer and Steven L. Berman, Executive Vice
President, Secretary-Treasurer and Director. The loss of the services of one or
both of these individuals could have a material adverse effect on the Company's
business.
Dividend Policy. The Company does not intend to pay cash dividends for
the foreseeable future. Rather, the Company intends to retain its earnings, if
any, for the operation and expansion of the Company's business.
Control by Officers, Directors and Family Members. Richard N. Berman and
Steven L. Berman, who are officers and directors of the Company, their father,
Jordan S. Berman, and their brothers, Marc H. Berman and Fred B. Berman,
beneficially own approximately 42% of the outstanding Common Stock and are able
to elect the Board of Directors, determine the outcome of most corporate actions
requiring shareholder approval (including certain fundamental transactions) and
control the policies of the Company.
Available Information
Our internet address is www.rbinc.com. We make available free of charge
on our web site our annual report on Form 10-K, quarterly reports on Form 10-Q
and current reports on Form 8-K, and amendments to those reports filed or
furnished pursuant to Section 13(a) or 15(d) of the Exchange Act, as soon as
reasonably practicable after we electronically file such material with, or
furnish it to, the SEC. In addition, we will provide, at no cost, paper or
electronic copies of our reports and other filings made with the SEC. Requests
should be directed to: R&B, Inc. - Office of General Counsel, 3400 East Walnut
Street, Colmar, Pennsylvania 18915.
The information on the website listed above, is not and should not be
considered part of this annual report on Form 10-K and is not incorporated by
reference in this document. This website is, and is only intended to be, an
inactive textual reference.
Item 2. Properties.
Facilities
The Company currently has 10 warehouse and office facilities located throughout
the United States, Sweden, China and Korea. Three of these facilities are owned
and the remainder are leased. The Company's headquarters and principal warehouse
facilities are as follows:
Location Description
------------------- ---------------------------------------------------
Colmar, PA Warehouse and office - 334,000 sq. ft. (leased) (1)
Warsaw, KY Warehouse and office - 362,000 sq. ft. (owned)
Louisiana, MO Warehouse and office - 90,000 sq. ft. (owned)
Baltimore, MD Warehouse and office - 83,000 sq. ft. (leased)
In the opinion of management, the Company's existing facilities are in good
condition.
-----------------
(1) Leased by the Company from a partnership of which Richard N. Berman,
President and Chief Executive Officer of the Company, and Steven L. Berman,
Executive Vice President of the Company, their father, Jordan S. Berman, and
their brothers, Marc H. Berman and Fred B. Berman, are partners. Under the lease
the Company paid rent of $3.63 per square foot ($1.2 million per year) in 2004.
The rents payable will be adjusted on January 1 of each year to reflect annual
changes in the Consumer Price Index for All Urban Consumers - U.S. City Average,
All Items. In 2002,
Page 9 of 42
the lease term was extended and will expire on December 31, 2007. In the opinion
of management, the terms of this lease are no less favorable than those which
could have been obtained from an unaffiliated party.
Item 3. Legal Proceedings.
In addition to commitments and obligations 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. In the opinion of management, none of the actions,
individually or in the aggregate, would likely have a material financial impact
on the Company.
Item 4. Submission of Matters to a Vote of Security Holders.
There were no matters submitted to a vote of the security holders of the
Company during the fourth quarter of fiscal year 2004.
Item 4.1 Certain Executive Officers of the Registrant.
The following table sets forth certain information with respect to the
executive officers of the Company:
Name Age Position with the Company
------------------ ----- ---------------------------------------------
Mathias J. Barton 45 Senior Vice President, Chief Financial Officer
Joseph M. Beretta 50 Senior Vice President, Product
Richard N. Berman 48 President, Chief Executive Officer, Chairman of
the Board of Directors, and Director
Steven L. Berman 45 Executive Vice President, Secretary-Treasurer,
and Director
Fred V. Frigo 48 Senior Vice President, Operations
Barry D. Myers 45 Senior Vice President, General Counsel and
Assistant Secretary
Mathias J. Barton joined the Company in November 1999 as Senior Vice
President, Chief Financial Officer. Prior to joining the Company, Mr. Barton was
Senior Vice President and Chief Financial Officer of Central Sprinkler
Corporation, a manufacturer and distributor of automatic fire sprinklers, valves
and component parts. From May 1989 to September 1998, Mr. Barton was employed by
Rapidforms, Inc., most recently as Executive Vice President and Chief Financial
Officer. He is a graduate of Temple University.
Joseph M. Beretta joined the Company in January 2004 as Senior Vice
President, Product. Prior to joining the Company, Mr. Beretta was employed by
Cardone Industries, Inc., most recently as its Chief Operating Officer. Cardone
is a remanufacturer and supplier of automotive replacement parts. He is a
graduate of Oral Roberts University.
Richard N. Berman has been President, Chief Executive Officer and a
Director of the Company since its incep tion in October 1978. He is a graduate
of the University of Pennsylvania.
Page 10 of 42
Steven L. Berman has been Executive Vice-President, Secretary-Treasurer
and a Director of the Company since its inception. He attended Temple
University.
Fred V. Frigo joined the Company in March 1997 as Director, Operations
and was named Senior Vice President, Operations in September 2003. Prior to
joining the Company, Mr. Frigo was the Plant Manager for Cooper Industries
(Federal Mogul), where he was responsible for their Wagner Brake Plant in Boston
and following that the Wagner Lighting Operations in Boyertown Pennsylvania. He
is a graduate of Elmhurst College.
Barry D. Myers has been an employee of the Company since March 1988, and
was Vice President, General Counsel and Assistant Secretary for more than five
years. In December 1999, Mr. Myers was named Senior Vice President, General
Counsel and Assistant Secretary. He is a graduate of Moravian College and
Syracuse University College of Law, and is a member of the Pennsylvania Bar.
PART II
Item 5. Market for Registrant's Common Equity and Related Shareholder Matters.
The Company's shares of common stock are traded publicly in the
over-the-counter market under the NASDAQ system. At March 4, 2005 there were 151
holders of record of common stock, representing more than 1,500 beneficial
owners. The last price for the Company's common stock on March 4, 2005, as
reported by NASDAQ, was $26.98 per share. Since the Company's initial public
offering, it has paid no cash dividends. The Company does not presently
contemplate paying any such dividends in the foreseeable future. The range of
high and low sales prices for the Company's common stock for each quarterly
period of 2004 and 2003 are as follows:
2004 2003
----------------------- -----------------------
High Low High Low
------------------ ---------- ------------ ---------- ------------
First Quarter $18.90 $14.73 $10.42 $8.84
Second Quarter 19.99 18.00 11.24 9.65
Third Quarter 20.64 19.00 14.00 10.55
Fourth Quarter 27.50 20.55 15.09 12.55
Item 6. Selected Financial Data.
Selected Consolidated Financial Data
Year Ended December
------------- ---------------------------------------------------------------
(in thousands, except
per share data 2004 2003 2002(a) 2001 2000 (b)
----------------------------- ------------- -------------- ---------------- -------------- ----------------
Statement of Operations Data:
Net sales $249,526 $222,083 $215,524 $201,668 $201,390
Income from operations (c) 29,638 24,052 23,133 12,266 12,308
Net income (c) 17,081 13,304 12,357 5,229 4,095
Earnings per share (c)
Basic $1.93 $1.54 1.4 0.61 0.49
Diluted $1.86 $1.47 1.3 0.60 0.48
Page 11 of 42
Balance Sheet Data:
Total assets 195,404 176,606 170,128 163,163 159,879
Working capital 101,585 98,452 91,340 81,068 83,262
Long-term debt 25,714 35,213 44,218 53,511 65,066
Shareholders' equity 125,227 105,985 89,572 75,162 72,384
(a) Results for 2002 include a gain on sale of specialty fastener business of
$2,143 ($1,329 after tax or $0.15 per share).
(b) Results for 2000 include non-recurring revenues and gain on sale of product
line of $5,500 and $1,600 ($1,100 after tax or $0.13 per share), respectively.
(c) The Company adopted the provisions of SFAS No. 142, "Goodwill and Other
Intangible Assets," at the beginning of fiscal 2002. With the adoption of SFAS
No. 142, goodwill is no longer subject to amortization. The following table
presents certain financial data for fiscal 2002 and all periods prior to fiscal
2002 adjusted to exclude amortization of goodwill and the related tax effects:
Year Ended December
-------------- ------------------------------------------------------------
2004 2003 2002 2001 2000
Income from operations $29,638 $ 24,052 $ 23,133 $ 13,891 $ 13,970
Net income $17,081 $ 13,304 $ 12,357 $ 6,293 $ 5,185
Diluted earnings per share $ 1.86 $ 1.47 $ 1.38 $ 0.73 $ 0.613
Item 7. Management's Discussion and Analysis of Results of Operations and
Financial Condition.
Executive Summary
The Company is a leading supplier of original equipment dealer
"Exclusive" automotive replacement parts, fasteners and service line products to
the automotive aftermarket and household hardware to the general merchandise
markets. The Company's products are marketed under more than seventy proprietary
brand names, through its Motormite, Dorman, Allparts, Scan-Tech, MPI and
Pik-A-Nut businesses.
For the year ended December 25, 2004, net sales increased 12% to $249.5
million from $222.1 million in the same period last year. The sales growth was
driven primarily by new product development, which is a key to the Company's
growth strategy. Gross margin remained essentially unchanged at 37.1% in 2004
from 37.0% in 2003. Operating expenses increased at a slower rate than sales
growth and therefore declined as a percentage of net sales to 25.2%. Many of the
Company's operating expenses are fixed in nature and therefore did not increase
in proportion to net sales growth. As a result, net income increased 28% to
$17.1 million in 2004.
New product development is a critical success factor for the Company. The
Company has invested heavily in resources necessary for it to increase its new
product development efforts and to strengthen its relationships with its
customers. These investments are primarily in the form of increased product
development and awareness programs, customer service improvements and increased
customer credits and allowances. This has enabled the Company to provide an
expanding array of new product offerings and grow its revenues.
The automotive aftermarket has been consolidating over the past several
years. As a result, many of the Company's customers have grown larger and
therefore have more leverage in negotiations with the Company. Recently,
customers have pressed for extended payment terms and returns of slow moving
product when negotiating with the Company. While the Company does its best to
avoid such concessions, in some cases payment terms to customers have been
extended and returns of product have exceeded historical levels. The product
returns primarily affect the Company's profit levels while terms extensions
generally reduce operating cash flow and require additional capital to finance
the business. Management expects both of these trends to continue for the
foreseeable future.
Page 12 of 42
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.
The Company operates on a fifty-two, fifty-three week period ending on
the last Saturday of the calendar year. The fiscal years ended December 25,
2004, December 27, 2003 and December 28, 2002 were each fifty- two week periods.
Critical Accounting Policies
The Company's discussion and analysis of its financial condition and
results of operations are based upon the consolidated financial statements,
which have been prepared in accordance with U.S. generally accepted accounting
principles. The preparation of these financial statements requires management to
make estimates and judgments that affect the reported amounts of assets and
liabilities, the disclosure of contingent liabilities and the reported amounts
of revenues and expenses. The Company regularly evaluates its estimates and
judgments, including those related to revenue recognition, bad debts, customer
credits, inventories, goodwill and income taxes. Estimates and judgments are
based upon historical experience and on various other assumptions believed to be
accurate and reasonable under the circumstances. Actual results may differ
materially from these estimates under different assumptions or conditions. The
Company believes the following critical accounting policies affect its more
significant estimates and judgments used in the preparation of its consolidated
financial statements:
Allowance for Doubtful Accounts. The preparation of the Company's
financial statements requires management to make estimates of the collectability
of its accounts receivable. Management specifically analyzes accounts receivable
and historical bad debts, customer creditworthiness, current economic trends and
changes in customer payment patterns when evaluating the adequacy of the
allowance for doubtful accounts. A significant percentage of the Company's
accounts receivable have been, and will continue to be, concentrated among a
relatively small number of automotive retailers and warehouse distributors in
the United States. The Company's five largest customers accounted for 77% and
70% of net accounts receivable as of December 25, 2004 and December 27, 2003,
respectively. A bankruptcy or financial loss associated with a major customer
could have a material adverse effect on the Company's sales and operating
results. The Company's allowance for doubtful accounts amounted to $1.1 million
and $1.2 million as of December 25, 2004 and December 27, 2003, respectively.
Revenue Recognition and Allowance for Customer Credits. Revenue is
recognized from product sales when goods are shipped, title and risk of loss
have been transferred to the customer and collection is reasonably assured. Net
sales are calculated by subtracting allowances for customer credits from gross
revenues. Allowances for customer credits include costs for product returns,
discounts and promotional rebates 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 Company provides for customer credits and
potential returns at the time of sale. Management must make estimates of the
ultimate value of customer credits that will be issued for future product
returns and sales allowances granted to induce customers to purchase products
from the Company. Management analyzes historical returns, current economic
conditions and changes in demand and acceptance of the Company's products when
evaluating the adequacy of its reserves for customer credits. Management
judgements and estimates must be made and used in connection with establishing
reserves for customer credits in any accounting period. Material differences in
the amount and timing of customer credits for any period may result if
management made different judgments or utilized different estimates for the
reserves. Reserves for customer credits were $19.5 million and $16.5 million as
of December 25, 2004 and December 27, 2003, respectively.
Excess and Obsolete Inventory Reserves. Management must make estimates
of potential future excess and obsolete inventory costs. The Company provides
reserves for discontinued and excess inventory based upon historical demand,
forecasted usage, estimated customer requirements and product line updates. The
Company
Page 13 of 42
maintains contact with its customer base in order to understand buying patterns,
customer preferences and the life cycle of its products. Changes in customer
requirements are factored into the reserve needs as needed. Reserves for excess
and obsolete inventory were $8.2 million and $8.5 million as of December 25,
2004 and December 27, 2003, respectively.
Goodwill. The Company has adopted the provisions of SFAS No. 142,
"Goodwill and Other Intangible Assets". SFAS No. 142 specifies that goodwill is
no longer amortized but instead is subject to periodic impairment testing. As a
result, the Company no longer amortizes goodwill. The Company has completed the
impairment tests required by SFAS No. 142, which did not result in an impairment
charge. Goodwill was $29.4 million and $29.1 million at December 25, 2004 and
December 27, 2003, respectively.
Income Taxes. The Company follows the liability method of accounting for
deferred income taxes. Under this method, income tax expense is recognized for
the amount of taxes payable or refundable for the current year and for deferred
tax liabilities and assets for the future tax consequences of events that have
been recognized in an entity's financial statements or tax returns. The Company
must make assumptions, judgments and estimates to determine its current
provision for income taxes and also its deferred tax assets and liabilities and
any valuation allowance to be recorded against a deferred tax asset.
Management's judgments, assumptions and estimates relative to the current
provision for income tax take into account current tax laws, its interpretation
of current tax laws and possible outcomes of current and future audits conducted
by tax authorities. Changes in tax laws or management's interpretation of tax
laws and the resolution of current and future tax audits could significantly
impact the amounts provided for income taxes in the Company's consolidated
financial statements. Management's assumptions, judgments and estimates relative
to the value of a deferred tax asset take into account predictions of the amount
and category of future taxable income. Actual operating results and the
underlying amount and category of income in future years could render
management's current assumptions, judgments and estimates of recoverable net
deferred taxes inaccurate. Any of the assumptions, judgments and estimates
mentioned above could cause the Company's actual income tax obligations to
differ from its estimates.
Results of Operations
The following table sets forth, for the periods indicated, the
percentage of net sales represented by cer tain items in the Company's
Consolidated Statements of Operations.
Percentage of Net Sales
--------------------------------------------------------
Year Ended
--------------------------------------------------------
December 25, December 27, December 28,
2004 2003 2002
----------------------------- ------------------ ---------------- -------------------
Net sales 100.0% 100.0% 100.0%
Cost of goods sold 62.9 63.0 63.3
----------------------------- ------------------ ---------------- -------------------
Gross profit 37.1 37.0 36.7
Selling, general and
administrative expenses 25.2 26.2 27.0
Gain on sale of specialty
fastener business - - (1.0)
----------------------------- ------------------ ---------------- -------------------
Income from operations 11.9 10.8 10.7
Interest expense, net 1.2 1.5 1.8
----------------------------- ------------------ ---------------- -------------------
Income before taxes 10.7 9.3 8.9
Provision for taxes 3.9 3.3 3.2
----------------------------- ------------------ ---------------- -------------------
Net income 6.8% 6.0% 5.7%
============================= ================== ================ ===================
Page 14 of 42
2004 Compared to 2003
Net sales increased 12% to $249.5 million in 2004 from $222.1 million in
2003. This sales increase is primarily the result of 2004 new product
introductions and year over year volume growth from products introduced in the
prior year. The favorable effects of foreign currency exchange resulted in a 1%
year over year increase in sales.
Cost of goods sold, as a percentage of net sales, remained essentially
flat at 62.9% in 2004 compared to 63.0% in 2003. The favorable effect of a
change in sales mix was offset by approximately $1.3 million in incremental
expediting costs incurred to maintain satisfactory customer fill rates in the
second half of 2004 as a result of material shortages for certain items and
higher than planned demand. Overall material costs were down slightly in 2004,
although the Company experienced price increases in several product lines in the
second half of the year as a result of raw materials price increases.
Selling, general and administrative expenses in 2004 increased 8% to
$62.9 million from $58.2 million. The expense increase was at a slower rate than
sales as many of the Company's operating expenses are fixed in nature and
therefore did not increase in proportion to sales growth. The increase in
expenses was the result of inflationary cost increases, an increase in variable
operating expenses due to the sales volume growth and further investments by the
Company in its new product development capabilities.
Interest expense, net decreased to $2.9 million in 2004 from $3.4
million in 2003 due to lower borrowing levels in 2004. The primary reason for
the lower borrowing levels in 2004 was a reduction in the outstanding principal
of the Company's 6.81% Senior Notes. In August 2004, the Company made the third
of seven annual installment payments of $8.6 million due under the terms of its
Senior Note Agreements. This installment payment was funded with cash on hand
rather than new debt.
The Company's effective tax rate increased to 36.2% in 2004 from 35.7%
in 2003 as a result of higher incremental tax rates on 2004's higher earnings
level.
2003 Compared to 2002
Net sales increased 3% to $222.1 million in 2003 from $215.5 million in
2002. This sales increase is all volume related as the Company had no net
selling price increases in 2003. Sales volume in 2003 increased as a result of
several successful new product introductions and shipments to new customers for
the Company's Allparts brake and Pik-A-Nut home hardware businesses. The
favorable effects of foreign currency exchange resulted in a 2% year over year
increase in sales. These sales increases were partially offset by a decline in
sales volume in the Company's Swedish subsidiary due to the weak U.S. dollar. In
addition, fourth quarter 2002 sales benefitted from over $4 million in one-time
sales related to customer inventory builds and 2002 sales included $2.1 million
in revenues from the specialty fastener business prior to its sale in May 2002.
Sales growth for fiscal 2003 after adjusting for foreign exchange, the specialty
fastener sale and the one-time sales described above was 4%.
Cost of goods sold, as a percentage of net sales, declined to 63.0% in
2003 from 63.3% in 2002. The overall decline in cost of goods sold as a
percentage of sales was the net result of three primary factors. First,
production and materials cost reduction initiatives resulted in cost savings
that lowered cost of sales. This benefit was offset by provisions for customer
credits that increased as a percentage of sales in 2003 as a result of higher
customer return levels in 2003 and a sales mix shift towards more lower-gross
margin product sales.
Selling, general and administrative expenses in 2003 were held to $58.2
million, which is the same level of spending as in 2002 despite additional
investments in product development resources, inflationary cost increases and 3%
sales volume growth in 2003. This was achieved through the implementation of a
number of cost saving measures which reduced overhead spending. Costs in 2002
also included $0.7 million in non- recurring net costs associated with the
closure of one of the Company's smaller distribution facilities.
Page 15 of 42
Interest expense, net decreased to $3.4 million in 2003 from $3.9
million in 2002 due to lower borrowing levels in 2002. The primary reason for
the lower borrowing levels in 2003 was a reduction in the outstanding principal
of the Company's 6.81% Senior Notes. In August 2003, the Company made the second
of seven annual installment payments of $8.6 million due under the terms of its
Senior Note Agreements. This installment payment was funded with cash on hand
rather than new debt.
The Company's effective tax rate increased slightly to 35.7% in 2003
from 35.6% in 2002.
Liquidity and Capital Resources
Historically, the Company has financed its growth through a combination
of cash flow from operations and through the issuance of senior indebtedness
through its bank credit facility and senior note agreements. At December 25,
2004, working capital was $101.6 million, total long-term debt (including the
current portion) was $34.8 million and shareholders' equity was $125.2 million.
Cash and short-term investments as of December 25, 2004 totaled $7.2 million.
Over the past three years the Company has extended payment terms to
certain customers as a result of customer requests and market demands. These
extended terms have resulted in increased accounts receivable levels and
significant uses of cash flow. The Company participates in accounts receivable
factoring programs with several customers which allow it to sell its accounts
receivable on a non-recourse basis to financial institutions to offset the
negative cash flow impact of these payment terms extensions. As of December 25,
2004 the Company had sold $18.0 million in accounts receivable under these
programs and had removed them from its balance sheet. The Company expects
continued pressure to extend its payment terms for the foreseeable future.
Further extensions of customer payment terms will result in additional uses of
cash flow or increased costs associated with the sale of accounts receivable.
During 2004, the Company announced its decision to invest approximately
$5.5 million to automate its recently-expanded central distribution facility in
Warsaw, Kentucky. Most of this spending was incurred in 2004. This initiative is
expected to be completed in the second quarter of 2005. Once completed, this
project is expected to generate significant efficiency improvements and improved
customer service capabilities for the Company's Dorman business. Total capital
spending in 2004 was $12.8 million as a result of the automation of the Warsaw
facility, a 77,200 square foot expansion of the Warsaw facility early in the
year, increased tooling costs for new products and other capital projects.
Capital spending in 2005 is expected to be between $8.0 and $10.0 million, which
is down from 2004's level, but up over historic levels due primarily to
increased spending on tooling for new products, which have become more complex
over the past few years.
Long-term debt consists primarily of $34.3 million in Senior Notes that
were originally issued in August 1998, in a private placement on an unsecured
basis ("Notes"). The Notes bear a 6.81% fixed interest rate, payable quarterly.
Annual principal payments of $8.6 million are due each August through 2008. The
Notes require, among other things, that the Company maintain certain financial
covenants relating to debt to capital ratios and minimum net worth.
The Company maintains a $10.0 million Revolving Credit Facility which
expires in June 2005. Borrowings under the amended facility are on an unsecured
basis with interest at LIBOR plus 150 basis points. The loan agreement also
contains covenants, the most restrictive of which pertain to net worth and the
ratio of debt to EBITDA. The average amount outstanding under the facility in
2004 was $0.4 million. The maximum amount outstanding in 2004 was $7.0 million.
In addition, the Company's Swedish subsidiary maintains a short-term $0.7
million credit facility. There were no borrowings outstanding under these
facilities as of December 25, 2004.
In November 2001, the Company amended certain agreements related to its
1998 acquisition of Scan-Tech USA/Sweden A.B. and related entities ("Scan-Tech")
in exchange for consideration of approximately $3.2 million to be paid in
installments through December 31, 2005. The Company paid $0.5 million of this
amount in both 2004 and 2003. The remaining amount payable of $0.5 million is
due to an entity controlled by
Page 16 of 42
the President of Scan-Tech.
The Company's business activities do not include the use of
unconsolidated special purpose entities, and there are no significant business
transactions that have not been reflected in the accompanying financial
statements.
The Company has future obligations for debt repayments, future minimum
rental and similar commitments under noncancellable operating leases as well as
contingent obligations related to outstanding letters of credit. These
obligations as of December 25, 2004 are summarized in the tables below:
Payments Due by Period
------------------------------------------------------
Less than
Contractual Obligations Total 1 year 1-3 years 4-5 years After 5 years
---------------------------------- ------------- ----------- ----------- ----------- ----------------
Long-term borrowings $ 34,759 $ 9,045 $ 25,714 $ - $ -
Operating leases 7,643 2,267 4,707 532 137
------------- ----------- ----------- ----------- ----------------
$ 42,402 $11,312 $ 30,421 $ 532 $ 137
============= =========== =========== =========== ================
Amount of Commitment Expiration Per Period
------------------------------------------------------
Total
Amount
Amounts Less than
Other Commercial Commitments Committed 1 year 1-3 years 4-5 years Over 5 years
---------------------------------- ------------- ----------- ----------- ------------ ---------------
Letters of credit $ 1,767 $ 1,767 $ - $ - $ -
------------- ----------- ----------- ------------ ---------------
$ 1,767 $ 1,767 $ - $ - $ -
============= =========== =========== ============ ===============
The Company reported a net source of cash flow from its operating
activities of $3.9 million in fiscal 2004. The primary uses of cash flow were
accounts receivable and inventory, which increased $16.4 million and $9.7
million, respectively. Accounts receivable grew as a result of higher sales and
the impact of the continuing trend towards longer payment terms to certain
customers. Inventory increased as a result of the sales increase in 2004, and as
a result of management's decision to increase levels of inventory safety stock
in the third quarter of 2004. Net income, depreciation and a $5.4 million
increase in accounts payable were the primary sources of operating cash flow in
fiscal 2004. The payables increase was primarily the result of higher levels of
inventory purchases and capital spending.
Investing activities used $2.9 million of cash in fiscal 2004. Additions
to property, plant and equipment required $12.8 million of cash as a result of
the Company's automation and expansion of its central distribution center in
Warsaw, Kentucky, tooling costs associated with new products, upgrades to
information systems, purchases of equipment designed to improve operational
efficiencies and scheduled equipment replacements. The Company previously
purchased highly liquid corporate and government bonds with maturities from nine
months to one year to take advantage of higher earnings rates on these
investments. These investments had been classified as short-term investments as
required by generally accepted accounting principles. The Company reported a net
source of cash of $9.9 million during the year related to the net proceeds from
investments.
Financing activities required $9.0 million in cash in fiscal 2004. These
uses were primarily the result of the scheduled repayment of $8.6 million on the
Company's Senior Notes in August 2004.
The Company believes that cash and short-term investments on hand and
cash generated from operations together with its available sources of capital
are sufficient to meet its ongoing cash needs for the foreseeable future.
Page 17 of 42
Foreign Currency Fluctuations
In 2004, approximately 60% 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 fluctuations 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, recent weakness in the
dollar has resulted in some materials price increase and pressure from several
foreign suppliers to increase prices further. To the extent that the dollar
decreases in value to foreign currencies in the future or the present weakness
in the dollar continues for a sustained period of time, the price of the product
in dollars for new purchase orders may increase further.
The Company makes significant purchases of product from Chinese vendors.
The Chinese Yuan exchange rate has been fixed against the U.S. Dollar since
1998. Recently, the Chinese government has been under increasing pressure to
revalue its currency, or to make its exchange rate more flexible. Most experts
believe that the value of the Yuan would increase relative to the U.S. Dollar if
it was revalued or allowed to float. Such a move would most likely result in an
increase in the cost of products that are purchased from China.
Impact of Inflation
The Company has not generally been adversely affected by inflation,
although the Company did experience some material cost increases as a result of
raw materials shortages. These increases did not have a material impact on the
Company. The Company believes that further cost increases could potentially be
mitigated by passing along price increases to customers or through the use of
alternative suppliers or resourcing purchases to other countries, however there
can be no assurance that the Company will be successful in such efforts.
Recent Accounting Pronouncements
In December 2004, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 123R, "Share-Based
Payment" (SFAS No. 123R). This Statement is a revision of SFAS No. 123 and
supersedes Accounting Principles Board (APB) 25 and its related implementation
guidance. SFAS No. 123R requires a company to measure the grant-date fair value
of equity awards given to employees in exchange for services and recognize that
cost over the period that such services are performed. SFAS No. 123R is
effective for the first interim or annual reporting period that begins after
June 15, 2005, the Company's third fiscal quarter. The Company is currently
evaluating the two methods of adoption allowed by SFAS No. 123R: the
modified-prospective transition method and the modified-retrospective transition
method. While the Company has not yet determined the precise impact that this
statement will have on its financial condition and results of operations for
fiscal 2005, assuming future annual stock option awards are comparable to prior
years annual awards and the Black-Scholes method is used to compute the value of
the awards, the annualized impact on diluted earnings per share is expected to
be consistent with our pro forma SFAS No. 123 disclosures.
In December 2004, the FASB issued two FASB Staff Positions (FSP)
regarding the accounting implications of the American Jobs Creation Act of 2004.
The Company is assessing the impact, if any, that FAS No. 109-1, "Application of
FASB Statement No. 109 'Accounting for Income Taxes' to the Tax Deduction on
Qualified Production Activities Provided by the American Jobs Creation Act of
2004" and FSP No. 109-2 "Accounting and Disclosure Guidance for the Foreign
Earnings Repatriation Provision within the American Jobs Creation Act of 2004"
will have on the Company's effective tax rate in 2005.
In December 2004, the FASB issued SFAS No. 151 "Inventory Costs, an
Amendment of ARB No. 43, Chapter 4". SFAS No. 151 clarifies the accounting for
abnormal amounts of idle facility expense, freight, handling costs and wasted
material and requires that these items be recognized as current period charges.
SFAS No. 151 applies only to inventory costs incurred during periods beginning
after the effective date and also requires that the allocation of fixed
production overhead to conversion costs be based on the normal capacity
Page 18 of 42
of the production facilities. SFAS No. 151 is effective for the Company's fiscal
year beginning January 1, 2006. The Company is currently assessing the impact,
if any, of the adoption of the provisions of SFAS No. 151.
In December 2004, the FASB issued SFAS No. 153 "Exchanges of
Non-monetary Assets, An Amendment of APB Opinion No. 29". SFAS No. 153
eliminates the exception for exchange of similar productive assets and replaces
it with a general exception for exchanges of non-monetary assets that do not
have commercial substance. SFAS No. 153 is effective for non-monetary assets and
exchanges occurring in fiscal periods beginning after June 15, 2005, the
Company's third fiscal quarter. As the Company does not engage in exchanges of
non-monetary assets, the Company does not anticipate that implementation of this
statement will have an impact on its financial condition or results of
operations.
In December 2003, the FASB issued Revised Interpretation No. 46,
"Consolidation of Variable Interest Entities - an interpretation of Account
Research Bulletin No. 51." FIN No. 46R addresses the consolidation by business
enterprises of variable interest entities, as defined in the Interpretation. FIN
No. 46R expands existing accounting guidance regarding when a company should
include in its financial statements the assets, liabilities and activities of
another entity. Since the Company does not have any interests in variable
interest entities, the adoption of FIN No. 46R did not have any effect on the
Company's consolidated financial condition or results of operations.
Cautionary Statement Regarding Forward Looking Statements
Certain statements periodically made by or on behalf of the
Company and certain statements contained herein including statements in
Management's Discussion and Analysis of Financial Condition and Results of
Operation; certain statements contained in Business, such as statements
regarding litigation; and certain other statements contained herein regarding
matters that are not historical fact are forward looking statements (as such
term is defined in the Securities Act of 1933), and because such statements
involve risks and uncertainties, actual results may differ materially from those
expressed or implied by such forward looking statements. Factors that cause
actual results to differ materially include but are not limited to those factors
discussed in "Business - Risk Factors."
Item 7A. Quantitative and Qualitative Disclosure about Market 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. Under the terms of the Company's
revolving credit facility and customer-sponsored programs to sell accounts
receivable, a change in either the lender's base rate or LIBOR would affect the
rate at which the Company could borrow funds thereunder. The Company believes
that the effect of any such change would be minimal. Short-term fixed income
investments are subject to interest rate and credit risk. The Company believes
that the negative effect of interest rate risk would be minimal as all
investments have maturities of one year or less.
Item 8. Financial Statements and Supplementary Data.
The financial statement schedules of the Company that are filed
with this Report on Form 10-K are listed in Item 15(a)(2), Part IV, of this
Report.
Page 19 of 42
Report of Independent Registered Public Accounting Firm
The Board of Directors
R&B, Inc.:
We have audited the accompanying consolidated balance sheets of
R&B, Inc. and subsidiaries as of December 25, 2004 and December 27, 2003 and the
related consolidated statements of operations, shareholders' equity and cash
flows for each of the years in the three-year period ended December 25, 2004. In
connection with our audits of the consolidated financial statements, we also
have audited the financial statement schedule. These consolidated financial
statements and financial statement schedule are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements and financial statement schedule based on our
audits.
We conducted our audits in accordance with the standards of the
Public Accounting Oversight Board (United States) . Those standards require that
we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the financial position of R&B,
Inc. and subsidiaries as of December 25, 2004 and December 27, 2003, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 25, 2004, in conformity with U.S. generally
accepted accounting principles. Also in our opinion, the related financial
statement schedule, when considered in relation to the basic consolidated
financial statements taken as a whole, presents fairly, in all material
respects, the information set forth therein.
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the effectiveness of
R&B, Inc. and subsidiaries' internal control over financial reporting as of
December 25, 2004, based on criteria established in Internal Control -
Integrated Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO), and our report dated March 7, 2005 expressed an
unqualified opinion on management's assessment of, and the effective operation
of, internal control over financial reporting.
KPMG LLP
Philadelphia, Pennsylvania
March 7, 2005
Page 20 of 42
R&B, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Year Ended
----------------------------------------------------
December 25, December 27, December 28,
(in thousands, except per share data) 2004 2003 2002
---------------------------------------------------------------------------------------------------------------
Net Sales $249,526 $222,083 $215,524
Cost of goods sold 157,004 139,875 136,321
---------------------------------------------------------------------------------------------------------------
Gross profit 92,522 82,208 79,203
Selling, general and administrative expenses 62,884 58,156 58,213
Gain on sale of specialty fastener business - - (2,143)
---------------------------------------------------------------------------------------------------------------
Income from operations 29,638 24,052 23,133
Interest expense, net of interest income of $103, $198, and $411 2,853 3,376 3,931
---------------------------------------------------------------------------------------------------------------
Income before income taxes 26,785 20,676 19,202
Income taxes 9,704 7,372 6,845
---------------------------------------------------------------------------------------------------------------
Net Income $ 17,081 $ 13,304 $ 12,357
===============================================================================================================
Earnings Per Share:
Basic $ 1.93 $ 1.54 $ 1.46
Diluted $ 1.86 $ 1.47 $ 1.38
===============================================================================================================
Weighted Average Shares Outstanding:
Basic 8,845 8,647 8,487
Diluted 9,184 9,050 8,948
===============================================================================================================
See accompanying notes to consolidated financial statements.
Page 21 of 42
R&B, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 25, December 27,
(in thousands, except share data) 2004 2003
------------------------------------------------------------------------ --------------- ---------------
Assets
Current Assets:
Cash and cash equivalents $ 7,152 $ 15,177
Short-term investments - 9,905
Accounts receivable, less allowance for doubtful accounts
and customer credits of $20,575 and $17,721 60,962 44,127
Inventories 61,436 51,170
Deferred income taxes 8,417 7,493
Prepaids and other current assets 1,609 1,356
------------------------------------------------------------------------ --------------- ---------------
Total current assets 139,576 129,228
------------------------------------------------------------------------ --------------- ---------------
Property, Plant and Equipment, net 25,698 17,590
Goodwill 29,410 29,125
Other Assets 720 663
------------------------------------------------------------------------ --------------- ---------------
Total $ 195,404 $ 176,606
======================================================================== =============== ===============
Liabilities and Shareholders' Equity
Current Liabilities:
Current portion of long-term debt $ 9,045 $ 8,571
Accounts payable 15,599 10,029
Accrued compensation 8,028 7,379
Other accrued liabilities 5,319 4,797
------------------------------------------------------------------------ --------------- ---------------
Total current liabilities 37,991 30,776
------------------------------------------------------------------------ --------------- ---------------
Long-Term Debt 25,714 35,213
Deferred Income Taxes 6,472 4,632
Commitments and Contingencies (Note 10)
Shareholders' Equity:
Common stock, par value $.01; authorized 25,000,000 shares;
issued and outstanding 8,935,964 and 8,762,994 shares 89 88
Additional paid-in capital 34,749 33,950
Cumulative translation adjustments 3,509 2,148
Retained earnings 86,880 69,799
----------------------------------------------------------------------- --------------- ---------------
Total shareholders' equity 125,227 105,985
------------------------------------------------------------------------ --------------- ---------------
Total $ 195,404 $ 176,606
======================================================================== =============== ===============
See accompanying notes to consolidated financial statements.
Page 22 of 42
R&B, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Common Stock
----------------------- Additional Cumulative
Shares Par Paid-In Translation Retained
(in thousands, except share data) Issued Value Capital Adjustments Earnings Total
------------------------------------------------ ----------- ---------- ------------ ------------- ---------- ----------
Balance at December 29, 2001 8,466,482 $ 85 $ 32,501 $ (1,562) $44,138 $ 75,162
Common stock issued to
Employee Stock Purchase Plan 1,652 - 12 - - 12
Compensation expense on stock option issuance - - 363 - - 363
Shares issued under Incentive Stock Plan 32,936 - 61 - - 61
Comprehensive Income:
Net income - - - - 12,357 12,357
Currency translation adjustments - - - 1,617 - 1,617
----------
Total comprehensive income 13,974
------------------------------------------------ ----------- ---------- ------------ ------------- ---------- ----------
Balance at December 28, 2002 8,501,070 85 32,937 55 56,495 89,572
Common stock issued to
Employee Stock Purchase Plan 568 - 5 - - 5
Compensation expense on stock option issuance - - 21 - - 21
Shares issued under Incentive Stock Plan 261,356 3 483 - - 486
Tax benefit of stock option exercises - - 504 - - 504
Comprehensive Income:
Net income - - - - 13,304 13,304
Currency translation adjustments - - - 2,093 - 2,093
----------
Total comprehensive income 15,397
------------------------------------------------ ----------- ---------- ------------ ------------- ---------- ----------
Balance at December 27, 2003 8,762,994 88 33,950 2,148 69,799 105,985
Common stock issued to
Employee Stock Purchase Plan 554 - 10 - - 10
Appreciation on shares redistributed to 401(k) plan - - 96 - - 96
Shares issued under Incentive Stock Plan 172,416 1 65 - - 66
Tax benefit of stock option exercises - - 628 - - 628
Comprehensive Income:
Net income - - - - 17,081 17,081
Currency translation adjustments - - - 1,361 - 1,361
----------
Total comprehensive income 18,442
------------------------------------------------ ----------- ---------- ------------ ------------- --------- -----------
Balance at December 25, 2004 8,935,964 $89 $34,749 $3,509 $86,880 $125,227
================================================ =========== ========== ============ ============= ========= ===========
See accompanying notes to consolidated financial statements.
Page 23 of 42
R&B, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Year Ended
------------------ ------------------- ------------------
December 25, December 27, December 28,
(in thousands) 2004 2003 2002
--------------------------------------------------- ------------------ ------------------- ------------------
Cash Flows from Operating Activities:
Net income $ 17,081 $ 13,304 $ 12,357
Adjustments to reconcile net income to cash
provided by operating activities:
Depreciation and amortization 4,545 4,640 5,560
Provision for doubtful accounts 110 504 737
Provision for deferred income tax 916 1,285 11
Provision for non-cash stock compensation - 21 363
Gain on sale of specialty fastener business - - (1,329)
Changes in assets and liabilities:
Accounts receivable (16,391) 4,806 (13,339)
Inventories (9,669) (2,766) (2,351)
Prepaids and other current assets (148) 173 28
Other assets 66 (119) 516
Accounts payable 5,380 (1,862) 3,101
2762,1012
Accrued compensation and other liabilities 1,976 757 (593)
--------------------------------------------------- ------------------ ------------------- ------------------
Cash provided by operating activities 3,866 20,743 5,061
--------------------------------------------------- ------------------ ------------------- ------------------
Cash Flows from Investing Activities:
Property, plant and equipment additions (12,801) (5,598) (3,543)
Purchase of short-term investments (4,821) (11,492) (22,795)
Proceeds from maturities of short-term investments 14,726 15,589 8,793
Proceeds from litigation settlement and sale of
specialty fastener business, net - - 7,374
--------------------------------------------------- ------------------ ------------------- ------------------
Cash used in investing activities (2,896) (1,501) (10,171)
--------------------------------------------------- ------------------ ------------------- ------------------
Cash Flows from Financing Activities:
Repayment of long-term debt obligations (9,071) (9,725) (11,483)
Proceeds from common stock issuances 76 491 73
--------------------------------------------------- ------------------ ------------------- ------------------
Cash used in financing activities (8,995) (9,234) ( 11,410)
--------------------------------------------------- ------------------ ------------------- ------------------
Net (Decrease)Increase in Cash and Cash
Equivalents (8,025) 10,008 (16,520)
Cash and Cash Equivalents, Beginning of
Year 15,177 5,169 21,689
--------------------------------------------------- ------------------ ------------------- ------------------
Cash and Cash Equivalents, End of Year $ 7,152 $ 15,177 $ 5,169
=================================================== ================== =================== ==================
Supplemental Cash Flow Information
Cash paid for interest expense $ 2,994 $ 3,638 $ 4,356
Cash paid for income taxes $ 8,418 $ 5,572 $ 7,218
See accompanying notes to consolidated financial statements.
Page 24 of 42
R&B, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 25, 2004
1. Summary of Significant Accounting Policies
R&B, Inc. (the "Company") is a leading supplier of OE Dealer
"Exclusive" automotive replacement parts, automotive hardware and brake products
to the automotive aftermarket and household hardware products to the general
merchandise markets. R&B's products are marketed under more than seventy
proprietary brand names, through its Motormite, Dorman, Allparts, Scan-Tech, MPI
and Pik-A-Nut businesses.
The Company operates on a fifty-two, fifty-three week period ending on
the last Saturday of the calendar year. The fiscal years ended December 25,
2004, December 27, 2003 and December 28, 2002 are each fifty-two week periods.
Principles of Consolidation. The consolidated financial statements
include the accounts of the Company and its wholly-owned subsidiaries. All
material intercompany accounts and transactions have been eliminated in
consolidation.
Use of Estimates in the Preparation of Financial Statements. The
preparation of financial statements in accordance with accounting principles
generally accepted in the United States requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Cash and Cash Equivalents. The Company considers all highly liquid debt
instruments with original maturities of three months or less to be cash
equivalents.
Short-term Investments. Short-term investments consist primarily of
corporate and government bonds with maturities of three months to one year from
the date of purchase. Short-term investments are classified as held-to-maturity
and are recorded at amortized cost. As of December 25, 2004, the Company did not
hold any short-term investments.
Sales of Accounts Receivable. The Company has entered into several
customer sponsored programs administered by unrelated financial institutions
that permit the Company to sell, without recourse, certain accounts receivable
at discounted rates to the financial institutions. The Company does not retain
any servicing requirements for these accounts receivable. Transactions under
this factoring agreement are accounted for as sales of accounts receivable
following the provisions of Statement of Financial Accounting Standards (SFAS)
No. 140, "Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities - a Replacement of FASB Statement 125." At
December 25, 2004 and December 27, 2003, $18.0 million and $2.0 million of
accounts receivable were sold and removed from the consolidated balance sheets,
respectively.
Inventories. Inventories are stated at the lower of average cost or
market. The Company provides reserves for discontinued and excess inventory
based upon historical demand, forecasted usage, estimated customer requirements
and product line updates.
Property and Depreciation. Property, plant and equipment are recorded
at cost and depreciated over their estimated useful lives, which range from
three to thirty-nine years, using the straight-line method for financial
statement reporting purposes and accelerated methods for income tax purposes.
Properties under capitalized leases were amortized over the related lease terms
(3-15 years). The costs of maintenance and repairs are expensed as incurred.
Renewals and betterments are capitalized. Gains and losses on disposals are
included in operating results.
Page 25 of 42
Goodwill. The Company adopted the provisions of SFAS No. 142, "Goodwill
and Other Intangible Assets." SFAS No. 142 specifies that goodwill is no longer
be amortized but instead is subject to periodic impairment testing. As a result,
the Company no longer amortizes goodwill. The Company has completed the
impairment tests required by SFAS No. 142, which did not result in an impairment
charge. Changes to goodwill in 2004 and 2003 are due to currency translation.
Other Assets. Other assets consist of deposits; costs incurred for the
preparation and printing of product catalogs, which are capitalized and
amortized upon distribution; and deferred financing costs, which are capitalized
and amortized over the term of the related financing agreement.
Foreign Currency Translation. Assets and liabilities of a foreign
subsidiary are translated into U.S. dollars at the rate of exchange prevailing
at the end of the year. Income statement accounts are translated at the average
exchange rate prevailing during the year. Translation adjustments resulting from
this process are recorded directly in shareholders' equity.
Concentrations of Credit Risk. Financial instruments that potentially
subject the Company to concentrations of credit risk consist primarily of cash
equivalents, short-term investments, and accounts receivable. All cash
equivalents and short-term investments are managed within established guidelines
which limit the amount which may be invested with one issuer. A significant
percentage of the Company's accounts receivable have been, and will continue to
be, concentrated among a relatively small number of automotive retailers and
warehouse distributors in the United States. The Company's five largest
customers accounted for 77 % and 70% of net accounts receivable as of December
25, 2004 and December 27, 2003, respectively. Management continually monitors
the credit terms and credit limits to these and other customers.
Fair Value Disclosures. The carrying value of financial instruments
such as cash, short-term investments, accounts receivable, accounts payable, and
other current assets and liabilities approximate their fair value based on the
short-term nature of these instruments. Based on borrowing rates currently
available to the Company for loans with similar terms and average maturities,
the fair value of total long-term debt was $36.9 million and $47.6 million at
December 25, 2004 and December 27, 2003, respectively.
Income Taxes. The Company follows the liability method of accounting
for deferred income taxes. Deferred tax assets and liabilities are determined
based on the difference between the financial statement and tax bases of assets
and liabilities. Deferred tax assets or liabilities at the end of each period
are determined using the tax rate expected to be in effect when taxes are
actually paid or recovered.
Revenue Recognition. Revenue is recognized from product sales when
goods are shipped, title and risk of loss have been transferred to the customer
and collection is reasonably assured. The Company calculates its net sales by
subtracting allowances for customer credits from gross sales. Allowances for
customer credits include costs for product returns, discounts and promotional
rebates 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. These allowances for customer credits are shown as a reduction of
accounts receivable. Amounts billed to customers for shipping and handling are
included in net sales. Costs associated with shipping and handling are included
in cost of goods sold.
Earnings Per Share. The following table sets forth the computation of
basic earnings per share and diluted earnings per share for the three years
ended December 25, 2004:
Page 26 of 42
2004 2003 2002
---------- ---- ----------- ----- -----------
Numerator: (in thousands, except per share data)
Net income ............................. $17,081 $13,304 $12,357
Denominator:
Weighted average shares outstanding used in
basic earnings per share calculation 8,845 8,647 8,487
Effect of dilutive stock options........ 339 403 461
---------- ---- ----------- ----- -----------
Adjusted weighted average shares outstanding
diluted earnings per share......... 9,184 9,050 8,948
========== ==== =========== ===== ===========
Basic earnings per share...................... $1.93 $ 1.54 $ 1.46
========== ==== =========== ===== ===========
Diluted earnings per share.................... $1.86 $1.47 $ 1.38
========== ==== =========== ===== ===========
Options to purchase 50,750 and 5,000 shares were outstanding at
December 27, 2003 and December 28, 2002, respectively, but were not included in
the computation of diluted earnings per share, as their effect would have been
antidilutive. No outstanding options at December 25, 2004 were excluded from the
computation of diluted earnings per share.
Stock-Based Compensation. At December 25, 2004, the Company has one
stock-based employee compensation plan, which is described more fully in Note
11. The Company accounts for this plan under the recognition and measurement
principles of Accounting Principles Board Opinion No. 25 (APB No. 25),
"Accounting for Stock Issued to Employees", and related interpretations. Under
APB No. 25, compensation expense is based on the difference, if any, on the date
of the grant between the fair value of our stock and the exercise price of the
option. The following table illustrates the effect on net income and earnings
per share if the Company had applied the fair value recognition provisions of
SFAS No. 123, "Accounting for Stock-Based Compensation", to stock-based employee
compensation.
Year Ended December
------------------------------------------------------ ---------------------------------------------
(in thousands, except per share data) 2004 2003 2002
------------------------------------------------------ ---------------- -------------- -------------
Net income:
Net income, as reported $ 17,081 $ 13,304 $ 12,357
Add: Stock-based employee compensation expense
net of related tax effects, included in the determination
of net income, as reported - 13 97
Less: Stock-based employee compensation expense,
net of related tax effects, determined under fair value
based method for all awards (148) ( 81) (629)
------------------------------------------------------ ---------------- -------------- -------------
Net income, pro forma $ 16,933 $ 13,236 $ 11,825
------------------------------------------------------ ---------------- -------------- -------------
Earnings per share:
Basic - as reported $ 1.93 $ 1.54$ 1.46
Basic - pro forma $ 1.91 $ 1.53$ 1.39
Diluted - as reported $ 1.86 $ 1.47$ 1.38
Diluted - pro forma $ 1.84 $ 1.46$ 1.32
The weighted average fair value of options granted in 2004, 2003 and 2002
was $9.33, $6.56 and
Page 27 of 42
$4.64, respectively. The fair value of each option grant is estimated on the
date of grant using the Black- Scholes option pricing model with the following
weighted average assumptions:
2004 2003 2002
---- ---- ----
Expected dividend yield 0% 0% 0%
Expected stock price volatility 51% 52% 53%
Risk-free interest rate 3.6% 3.3% 3.3%
Expected life of option 7.5 years 7.5 years 7.5 years
2. Gain on Sale of Specialty Fastener Business and Litigation Settlement
On May 1, 2002, the Company entered into agreements to sell the
Company's specialty fastener business and to settle litigation initiated by the
Company in 1996 related to its purchase of its Dorman business. Total proceeds
from the sale and settlement, net of transaction costs and purchase price
adjustments were approximately $7.4 million. The transactions resulted in an
after-tax gain on the sale of the fastener business of $1.3 million, and a
reduction in goodwill totaling $2.2 million.
3. Inventories
Inventories include the cost of material, freight, direct labor and
overhead utilized in the processing of the Company's products. Inventories were
as follows:
December 25, December 27,
(in thousands) 2004 2003
---------------------- ------------------ --------------------
Bulk product $26,407 $22,365
Finished product 32,029 25,906
Packaging materials 3,000 2,899
---------------------- ------------------ --------------------
Total $61,436 $51,170
====================== ================== ====================
4. Property, Plant and Equipment
Property, plant and equipment consists of the following:
December 25, December 27,
(in thousands) 2004 2003
------------------------------------ ------------------ --------------------
Property under capitalized leases $ 2,452 $ 2,452
Buildings 10,447 8,419
Machinery, equipment and tooling 24,693 20,296
Furniture, fixtures and
leasehold improvements 3,633 3,677
Computer and other equipment 25,168 20,468
------------------------------------ ------------------ --------------------
Total 66,393 55,312
Less-accumulated depreciation (40,695) (37,722)
------------------------------------ ------------------ --------------------
Property, plant and equipment, net $25,698 $17,590
==================================== ================== ====================
Page 28 of 42
5. Long-Term Debt
Long-term debt consists of the following:
December 25, December 27,
(in thousands) 2004 2003
--------------------------------- ------------------- -------------------
Senior notes $34,285 $42,857
Obligation for stock repurchase
(Note 7) 474 927
--------------------------------- ------------------- -------------------
Total 34,759 43,784
Less: Current portion ( 9,045) (8,571)
--------------------------------- ------------------- -------------------
Total long-term debt $25,714 $35,213
================================= =================== ===================
Senior Notes. The Senior Notes bear a 6.81% fixed interest rate, payable
quarterly. Annual principal repayments at the rate of $8.6 million are due each
August through 2008. Terms of the Note Purchase Agreement require, among other
things, that the Company maintain certain financial covenants relating to debt
to capital ratios and minimum net worth.
Bank Credit Facility. The Company has a Revolving Credit Facility which
provides for a $10 million facility that expires in June 2005. Borrowings under
the facility are on an unsecured basis with interest at LIBOR plus 150 basis
points. The loan agreement also contains covenants, the most restrictive of
which pertain to net worth and the ratio of debt to EBITDA. The average amount
outstanding under the Revolving Credit Facility was $422,000 during 2004. The
maximum amount outstanding in 2004 was $7.0 million. There were no borrowings
outstanding as of December 25, 2004. There were no borrowings under the
Revolving Credit Facility in 2003. The Company's Swedish subsidiary maintains a
$750,000 credit facility. As of December 25, 2004, no amounts were outstanding
under this facility, which is provided on an unsecured, short-term basis.
The Company is in compliance with all financial covenants contained in
the Senior Notes and Revolving Credit Facility.
Aggregate annual principal payments applicable to long-term debt
obligations as of December 25, 2004 are as follows:
(in thousands)
2005 $ 9,045
2006 8,571
2007 8,571
2008 8,572
Thereafter -
------------------------------------------
Total $34,759
------------------------------------------
6. Operating Lease Commitments and Rent Expense
The Company leases certain equipment, automobiles and operating
facilities, including the Company's primary operating facility which is leased
from a partnership related to the Company by common ownership, under
noncancelable operating leases. Approximate future minimum rental payments under
these leases are summarized as follows:
Page 29 of 42
(in thousands)
2005 $ 2,267
2006 2,125
2007 2,060
2008 522
2009 532
Thereafter 137
-------------- ------------------
Total $ 7,643
============== ==================
Rent expense was $2.9 million in 2004, $2.8 million in 2003 and $2.9
million in 2002.
7. Related Party Transactions
The Company has entered into a noncancelable operating lease for its
primary operating facility from a partnership in which the Company's Chief
Executive Officer and Executive Vice President are partners. Total rental
payments each year to the partnership under the lease arrangement were $1.2
million in 2004, 2003 and 2002.
Prior to April 2003, the Company had leased its Carrollton, Georgia
facility from another partnership in which the Company's Chief Executive Officer
and Executive Vice President are partners. During 2003, the Company entered into
an agreement to terminate the lease for this facility. In connection with this
agreement, the Company paid $200,000, which was accrued in 2002, to terminate
this lease subject to the closing of the sale of the building by the partnership
to an unrelated entity. Total payments to the partnership under the lease
arrangements, including the lease termination payment, were $269,000 and
$272,000 in 2003 and 2002, respectively.
In November 2001, the Company amended certain agreements related
to its 1998 acquisition of Scan- Tech USA/Sweden A.B. and related entities
("ScanTech") in exchange for consideration of approximately $3.2 million to be
paid in installments through December 31, 2005. The Company paid $0.5 million of
this amount both in 2004 and 2003. The obligation includes interest imputed at a
5.0% rate. The remaining amount payable of $0.5 million is due to an entity
controlled by the President of Scan-Tech.
8. Income Taxes
The components of the income tax provision are as follows:
(in thousands) 2004 2003 2002
------------------------ ------------------ ----------------- ----------------
Current:
Federal $7,621 $5,371 $ 6,048
State 517 292 365
Foreign 650 424 394
------------------------ ------------------ ----------------- ----------------
8,788 6,087 6,807
------------------------ ------------------ ----------------- ----------------
Deferred:
Federal 857 1,224 36
State 59 61 2
Foreign - - -
------------------------ ------------------ ----------------- ----------------
916 1,285 38
------------------------ ------------------ ----------------- ----------------
Total $9,704 $7,372 $6,845
======================== ================== ================= ================
Page 30 of 42
The following is a reconciliation of income taxes at the statutory tax rate to
the Company's effective tax rate:
2004 2003 2002
-------------------------------------------------------------------------------
Federal taxes at statutory rate 35.0% 34.0% 34.0%
State taxes, net of Federal tax benefit 1.4% 1.1% 1.2%
Other (0.2%) 0.6% 0.4%
-------------------------------------------------------------------------------
Effective tax rate 36.2% 35.7% 35.6%
===============================================================================
Deferred income taxes result from timing differences in the
recognition of revenue and expense for tax and financial statement purposes. The
sources of temporary differences are as follows:
December 25, December 27,
(in thousands) 2004 2003
-------------------------------------- ----------------- ----------------------
Assets:
Inventories $3,195 $ 3,251
Accounts receivable 3,449 2,833
Accrued expenses 1,765 1,547
-------------------------------------- ---------------- ----------------------
Gross deferred tax assets 8,409 7,631
-------------------------------------- ----------------- ----------------------
Liabilities:
Depreciation 1,284 106
Goodwill 5,180 4,664
-------------------------------------- ----------------- ----------------------
Gross deferred tax liabilities 6,464 4,770
-------------------------------------- ----------------- ----------------------
Net deferred tax assets $1,945 $2,861
====================================== ================= ======================
Based on the Company's history of taxable income and its projection
of future earnings, the Company believes that it is more likely than not that
sufficient taxable income will be generated in the foreseeable future to realize
the net deferred tax assets.
As of December 25, 2004, the Company has not provided taxes on
unremitted foreign earnings from its foreign affiliate of approximately $8.7
million that are intended to be indefinitely reinvested in operations and
expansion outside the United States. The Company is exploring a one time
repatriation of earnings from certain foreign affiliates as a result of the
American Jobs Creation Act of 2004, but has not made a decision regarding such
repatriation. The deduction is subject to a number of limitations and
uncertainty remains as to how to interpret numerous provisions in the American
Jobs Creation Act of 2004. As such, the Company is not yet in a position to
decide on whether, and to what extent, it might repatriate foreign earnings.
9. Business Segments
In accordance with SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information," the Company has determined that its
business comprises a single reportable operating segment, namely, the sale of
replacement parts for the automotive aftermarket.
During 2004, 2003 and 2002, two customers each accounted for more
than 10% of net sales and in the aggregate accounted for 34%, 31% and 36% of net
sales, respectively. Net sales to countries outside the US, primarily to Western
Europe and Canada in 2004, 2003 and 2002 were $23.1 million, $20.7 million and
$22.9 million, respectively.
10. Commitments and Contingencies
Shareholder Agreement. A shareholder agreement was entered into
in September 1990 and
Page 31 of 42
amended and restated on August 1, 2004. Under the agreement, each of Richard
Berman, Steven Berman, Jordan Berman, Marc Berman and Fred Berman has granted
the others of them rights of first refusal, exercisable on a pro rata basis or
in such other proportions as the exercising shareholders may agree, to purchase
shares of the common stock of the Company which any of them, or upon their
deaths their respective estates, proposes to sell to third parties. The Company
has agreed with these shareholders that, upon their deaths, to the extent that
any of their shares are not purchased by any of these surviving shareholders and
may not be sold without registration under the Securities Exchange Act of 1933,
as amended (the "1933 Act"), the Company will use its best efforts to cause
those shares to be registered under the 1933 Act. The expenses of any such
registration will be borne by the estate of the deceased shareholder.
Legal Proceedings. The Company is party to certain legal proceedings
and claims arising in the normal course of business. Management believes that
the disposition of these matters will not have a material adverse effect on the
Company's consolidated financial position or results of operations.
11. Capital Stock
Undesignated Stock. The Company has 75,000,000 shares authorized of
undesignated capital stock for future issuance. The designation, rights and
preferences of such shares will be determined by the Board of Directors.
Incentive Stock Option Plan. Effective May 18, 2000 the Company
amended and restated its Incentive Stock Option Plan (the "Plan"). Under the
terms of the Plan, the Board of Directors of the Company may grant incentive
stock options and non-qualified stock options or combinations thereof to
purchase up to 1,172,500 shares of common stock to officers, directors and
employees. Grants under the Plan must be made within 10 years of the plan
amendment date and are exercisable at the discretion of the Board of Directors
but in no event more than 10 years from the date of grant. At December 25, 2004,
options to acquire 218,041 shares were available for grant under the Plan.
Transactions under the Plan for the three years ended December 25,
2004 were as follows:
Option Price Weighted
Shares per Share Average Price
--------------------------------------- ---------------- ------------------- -------------------
Balance at December 29, 2001 804,429 $1.00 - 9.625 $2.59
Granted 45,000 8.00 8.00
Exercised (51,750) 1.00 - 3.00 2.71
Canceled (7,500) 3.00 3.00
--------------------------------------- ---------------- ------------------- -------------------
Balance at December 28, 2002 790,179 1.00 - 9.625 2.89
Granted 148,250 10.15 - 14.28 11.51
Exercised (284,033) 1.00 - 9.625 2.62
Canceled ( 5,750) 3.00 - 8.00 6.07
--------------------------------------- ---------------- ------------------- -------------------
Balance at December 27, 2003 648,646 1.00 - 14.28 4.96
Granted 60,000 16.01 - 19.45 16.46
Exercised (193,346) 1.00 - 10.15 2.77
Canceled ( 54,000) 10.15 - 10.16 10.16
--------------------------------------- ---------------- ------------------- -------------------
Balance at December 25, 2004 461,300 $1.00 - 19.45 $6.77
--------------------------------------- ---------------- ------------------- -------------------
Options exercisable at
December 25, 2004 295,367 $1.00 - 14.28 $3.36
--------------------------------------- ---------------- ------------------- -------------------
Page 32 of 42
The following table summarizes information concerning currently outstanding and
exercisable options at December 25, 2004:
Options Outstanding Options Exercisable
----------------------------------------------- ---------------------------------
Weighted-
Average Weighted-
Remaining Average Weighted-
Range of Numbers Contractual Exercise Number Average
Exercise Price Outstanding Life (years) Price Exercisable Exercise Price
------------------ ---------------- ---------------- ------------- ---------------- ---------------
$1.00 - $3.00 267,550 6.1 $2.50 264,017 $ 2.51
$5.70 - $8.00 40,500 7.4 $7.82 12,700 $ 7.73
$10.15 - $14.28 93,250 8.7 $12.32 18,650 $12.32
$16.01 - $19.45 60,000 9.2 $16.46 - -
Employee Stock Purchase Plan. In March 1992, the Board of Directors
adopted the Employee Stock Purchase Plan which was subsequently approved by the
shareholders. The Plan permits the granting of options to purchase up to 300,000
shares of common stock by the employees of the Company. In any given year,
employees may purchase up to 4% of their annual compensation, with the option
price set at 85% of the fair market value of the stock on the date of exercise.
All options granted during any year expire on the last day of the fiscal year.
During 2004, optionees had exercised rights to purchase 554 shares at prices
from $14.03 to $22.47 per share for total net proceeds of $10,000.
401(k) Retirement Plan. The Company maintains a defined contribution
profit sharing and 401(k) plan covering substantially all of its employees as of
December 25, 2004. Annual contributions under the plan are determined by the
Board of Directors of the Company. Consolidated expense related to the plan was
$865,000, $1,121,000, and $856,000 in fiscal 2004, 2003 and 2002, respectively.
12. Accounting Pronouncements
In December 2004, the Financial Accounting Standards Board (FASB)
issued SFAS No. 123R, "Share-Based Payment". This Statement is a revision of
SFAS No. 123 and supersedes APB No. 25 and its related implementation guidance.
SFAS No. 123R requires a company to measure the grant-date fair value of equity
awards given to employees in exchange for services and recognize that cost over
the period that such services are performed. SFAS No. 123R is effective for the
first interim or annual reporting period that begins after June 15, 2005, the
Company's third fiscal quarter. The Company is currently evaluating the two
methods of adoption allowed by SFAS No. 123R: the modified-prospective
transition method and the modified- retrospective transition method. While the
Company has not yet determined the precise impact that this statement will have
on its financial condition and results of operations for fiscal 2005, assuming
future annual stock option awards are comparable to prior years annual awards
and the Black-Scholes method is used to compute the value of the awards, the
annualized impact on diluted earnings per share is expected to be consistent
with our pro forma SFAS No. 123 disclosures.
In December 2004, the FASB issued two FASB Staff Positions (FSP)
regarding the accounting implications of the American Jobs Creation Act of 2004.
The Company is assessing the impact, if any, that FAS No. 109-1, "Application of
FASB Statement No. 109 'Accounting for Income Taxes' to the Tax Deduction on
Qualified Production Activities Provided by the American Jobs Creation Act of
2004" and FSP No. 109-2 "Accounting and Disclosure Guidance for the Foreign
Earnings Repatriation Provision within the American Jobs Creation Act of 2004"
will have on the Company's effective tax rate in 2005.
In December 2004, the FASB issued SFAS No. 151 "Inventory Costs, an
Amendment of ARB No. 43, Chapter 4". SFAS No. 151 clarifies the accounting for
abnormal amounts of idle facility expense, freight, handling costs and wasted
material and requires that these items be recognized as current period charges.
SFAS
Page 33 of 42
No. 151 applies only to inventory costs incurred during periods beginning after
the effective date and also requires that the allocation of fixed production
overhead to conversion costs be based on the normal capacity of the production
facilities. SFAS No. 151 is effective for the Company's fiscal year beginning
January 1, 2006. The Company is currently assessing the impact, if any, of the
adoption of the provisions of SFAS No. 151.
In December 2004, the FASB issued SFAS No. 153 "Exchanges of
Non-monetary Assets, An Amendment of APB Opinion No. 29". SFAS No. 153
eliminates the exception for exchange of similar productive assets and replaces
it with a general exception for exchanges of non-monetary assets that do not
have commercial substance. SFAS No. 153 is effective for non-monetary assets and
exchanges occurring in fiscal periods beginning after June 15, 2005, the
Company's third fiscal quarter. As the Company does not engage in exchanges of
non-monetary assets, the Company does not anticipate that implementation of this
statement will have an impact on its financial condition or results of
operations.
In December 2003, the FASB issued Revised Interpretation No. 46,
"Consolidation of Variable Interest Entities - an interpretation of Account
Research Bulletin No. 51." FIN No. 46R addresses the consolidation by business
enterprises of variable interest entities, as defined in the Interpretation. FIN
No. 46R expands existing accounting guidance regarding when a company should
include in its financial statements the assets, liabilities and activities of
another entity. Since the Company does not have any interests in variable
interest entities, the adoption of FIN No. 46R did not have any effect on the
Company's consolidated financial condition or results of operations.
13. Subsequent Event
On February 24, 2005, the Company's Board of Directors approved a
two-for-one split of the Company's common stock, payable in the form of a stock
dividend of one share for each share held. The Board of Directors set March 15,
2005 as the record date for the determination of the shareholders entitled to
receive the additional shares. The Company expects the shares to be distributed
on March 28, 2005.
Page 34 of 42
Supplementary Financial Information
Quarterly Results of Operations (Unaudited):
The following is a summary of the unaudited quarterly results of
operations for the fiscal years ended December 25, 2004 and December 27, 2003:
(in thousands, except per First Second Third Fourth
share amounts) Quarter Quarter Quarter Quarter
----------------------------- ---------------- ----------------- --- --------------- -----------------
2004
------------------------------------------------------------------------
Net sales $56,005 $64,277 $64,135 $65,109
Income from operations 5,957 9,114 7,624 6,943
Net income 3,318 5,317 4,402 4,044
Diluted earnings per share 0.36 0.58 0.48 0.44
2003
------------------------------------------------------------------------
Net sales $50,272 $58,068 $58,183 $55,560
Income from operations 4,338 6,372 6,610 6,732
Net income 2,225 3,525 3,717 3,837
Diluted earnings per share 0.25 0.39 0.41 0.42
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
None
Item 9A. Controls and Procedures.
Conclusion Regarding the Effectiveness of Disclosure Controls
and Procedures
Our Management, with the participation of our chief executive officer
and chief financial officer, conducted an evaluation, as of December 25, 2004,
of the effectiveness of our disclosure controls and procedures, as such term is
defined in Exchange Act Rule 13a-15(e). Based on this evaluation, our chief
executive officer and our chief financial officer concluded that, as of the end
of the period covered by this annual report, our disclosure controls and
procedures were effective in reaching a reasonable level of assurance that
management is timely alerted to material information related to us during the
period when our periodic reports are being prepared.
Management's Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate
internal control over financial reporting, as such term is defined in Exchange
Act Rule 13a-15(f). Our management, with the participation of our chief
executive officer and chief financial officer, conducted an evaluation, as of
December 25, 2004, of the effectiveness of our internal control over financial
reporting based on the framework in Internal Control - Integrated Framework
issued by the Committee of Sponsoring Organizations of the Treadway Commission.
Based on this evaluation under the framework in Internal Control - Integrated
Framework, our management concluded that, as of December 25, 2004, our internal
control over financial reporting was effective to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with generally accepted
accounting principles.
Page 35 of 42
Our management's assessment of the effectiveness of our internal control
over financial reporting as of December 25, 2004 has been audited by KPMG LLP,
an independent registered public accounting firm, as stated in their report
which is included herein.
Changes in Internal Control Over Financial Reporting
Our management, with the participation of our chief executive officer
and chief financial officer, also conducted an evaluation of our internal
control over financial reporting, to determine whether any changes occurred
during the quarter ended December 25, 2004 that have materially affected, or are
reasonably likely to materially affect, our internal control over financial
reporting. Based on that evaluation, there was no such change during the quarter
ended December 25, 2004.
Report of Independent Registered Public Accounting Firm
The Board of Directors
R&B, Inc.:
We have audited management's assessment, included in the accompanying
Management's Report on Internal Control Over Financial Reporting that R&B, Inc.
and subsidiaries maintained effective internal control over financial reporting
as of December 25, 2004, based on criteria established in Internal
Control-Integrated Framework issued by the Committee of Sponsoring Organizations
of the Treadway Commission (COSO). R&B, Inc.'s management is responsible for
maintaining effective internal control over financial reporting and for its
assessment of the effectiveness of internal control over financial reporting.
Our responsibility is to express an opinion on management's assessment and an
opinion on the effectiveness of the Company's internal control over financial
reporting based on our audit.
We conducted our audit in accordance with the standards of the Public
Company Accounting Oversight Board (United States). Those standards require that
we plan and perform the audit to obtain reasonable assurance about whether
effective internal control over financial reporting was maintained in all
material respects. Our audit included obtaining an understanding of internal
control over financial reporting, evaluating management's assessment, testing
and evaluating the design and operating effectiveness of internal control, and
performing such other procedures as we considered necessary in the
circumstances. We believe that our audit provides a reasonable basis for our
opinion.
A company's internal control over financial reporting is a process
designed to provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles. A company's internal
control over financial reporting includes those policies and procedures that (1)
pertain to the maintenance of records that, in reasonable detail, accurately and
fairly reflect the transactions and dispositions of the assets of the company;
(2) provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of
the company; and (3) provide reasonable assurance regarding prevention of timely
detection of unauthorized acquisition, use, or disposition of the company's
assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial
reporting may not prevent or detect misstatements. Also, projections of any
evaluation of effectiveness to future periods are subject to the risk that
controls may become inadequate because of changes in conditions, or that the
degree of compliance with the policies or procedures may deteriorate.
In our opinion, management's assessment that R&B, Inc. and subsidiaries
maintained effective internal control over financial reporting as of December
25, 2004, is fairly stated, in all material respects, based on
Page 36 of 42
criteria established in Internal Control - Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission (COSO). Also,
in our opinion, R&B, Inc. and subsidiaries maintained, in all material respects,
effective internal control over financial reporting as of December 25, 2004,
based on criteria established in Internal Control - Integrated Framework issued
by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
We also have audited, in accordance with the standards of the Public
Company Accounting Oversight Board (United States), the consolidated balance
sheets of R&B, Inc. and subsidiaries as of December 25, 2004 and December 27,
2003, and the related consolidated statements of operations, stockholders'
equity, and cash flows for each of the years in the three-year period ended
December 25, 2004, and the related financial statement schedule, and our report
dated March 7, 2005 expressed an unqualified opinion on those consolidated
financial statements and the related financial statement schedule.
KPMG LLP
Philadelphia, PA
March 7, 2005
PART III
Item 10. Directors and Executive Officers of the Registrant.
Information concerning the directors of the Company is incorporated by
reference to the section entitled "Election of Directors" in the Company's Proxy
Statement for its Annual Meeting of Shareholders to be held on May 19, 2005.
Information concerning executive officers of the Company who are not
also directors is presented in Item 4.1, Part I of this Report on Form 10-K.
The information required by Item 10 regarding audit committee financial
expert disclosure is incorporated by reference from the information under the
caption "Committees of the Board of Directors - Audit Committee" in the
Company's Proxy Statement for its Annual Meeting of Shareholders to be held on
May 19, 2005.
The Company has adopted a written code of ethics, "Our Values and
Standards of Business Conduct," which is applicable to all Company directors,
officers and employees, including the Company's chief executive officer, chief
financial officer, and principal accounting officer and controller and other
executive officers identified pursuant to this Item 10 (collectively, the
"Selected Officers"). In accordance with the Commission's rules and regulations
a copy of the code is posted on our website. The Company intends to disclose any
changes in or waivers from its code of ethics applicable to any Selected Officer
or director on its website at www.rbinc.com.
Item 11. Executive Compensation.
Incorporated by reference to the section entitled "Executive
Compensation and Transactions" in the Company's Proxy Statement for its Annual
Meeting of Shareholders to be held on May 19, 2005.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
Incorporated by reference to the section entitled "Beneficial Ownership
of Common Stock" in the Company's Proxy Statement for its Annual Meeting of
Shareholders to be held on May 19, 2005.
Page 37 of 42
Equity Compensation Plan Information
The following table details information regarding the Company's existing
equity compensation plans as of December 25, 2004:
(c)
Number of securities
(a) remaining available for
Number of securities (b) future issuance under
to be issued upon Weighted-average equity compensation
exercise of exercise price of plans (excluding
Plan Category outstanding options, outstanding options, securities reflected in
warrants and rights warrants and rights column (a))
---------------------------- ----------------------- -------------------- -----------------------
Equity compensation plans
approved by security holders 461,300 $6.77 218,041
Equity compensation plans not
approved by security holders - - -
----------------------- -------------------- ------------------------
Total 461,300 $6.77 218,041
======================= ==================== ========================
Item 13. Certain Relationships and Related Transactions.
Incorporated by reference to the section entitled "Executive
Compensation and Transactions" in the Company's Proxy Statement for its Annual
Meeting of Shareholders to be held on May 19, 2005.
Item 14. Principal Accountant Fees and Services.
Incorporated by reference to the section entitled "Independent Auditors
Fees" in the Company's Proxy Statement for its Annual Meeting of Shareholders to
be held on May 19, 2005.
PART IV
Item 15. Exhibits and Consolidated Financial Statement Schedules.
(a)(1) Consolidated Financial Statements. The consolidated financial
statements of the Company and related documents are listed in Item 8, Part II,
of this Report on Form 10-K.
Report of Independent Registered Public Accounting Firm
Consolidated Statements of Operations for the years ended December 25,
2004, December 27, 2003 and December 28, 2002.
Consolidated Balance Sheets as of December 25, 2004 and December 27,
2003.
Consolidated Statements of Shareholders' Equity for the years ended
December 25, 2004, December 27, 2003 and December 28, 2002.
Page 38 of 42
Consolidated Statements of Cash Flows for the years ended December 25,
2004, December 27, 2003 and December 28, 2002.
Notes to Consolidated Financial Statements
(a)(2) Consolidated Financial Statement Schedules. The following
consolidated financial statement schedule of the Company and related
documents are filed with this Report on Form 10-K:
Page
Schedule II - Valuation and Qualifying Accounts..................42
(a)(3) Exhibits that are filed as a part of this Form 10-K and required
by Item 601 of Regulation S-K and Item 15(c) of this Form 10-K are listed below:
Item 601
Exhibit
Number Title
3.1 (1) Amended and Restated Articles of Incorporation of the Company.
3.2 (1) Bylaws of the Company.
4.1 (1) Specimen Common Stock Certificate of the Company.
4.2 Amended and Restated Shareholders' Agreement dated August 1, 2004
(filed with this report).
10.1 (1) Lease, dated December 1, 1990, between the Company and the
Berman Real Estate Partnership, for premises located at 3400 East
Walnut Street, Colmar, Pennsylvania.
10.1.1 (3) Amendment to Lease, dated September 10, 1993, between the
Company and the Berman Real Estate Partnership, for premises
located at 3400 East Walnut Street, Colmar, Pennsylvania, amending
10.1.
10.1.2 (5) Assignment of Lease, dated February 24, 1997, between the
Company, the Berman Real Estate Partnership and BREP 1, for the
premises located at 3400 East Walnut Street, Colmar, Pennsylvania,
assigning 10.1.
10.1.3 (8) Amendment to Lease, dated April 1, 2002, between the Company
and the BREP I, for premises located at 3400 East Walnut Street,
Colmar, Pennsylvania, amending 10.1.
10.3 (6)+ R&B, Inc. Amended and Restated Incentive Stock Plan.
10.4 (2)+ R&B, Inc. 401(k) Retirement Plan and Trust.
10.4.1 (7)+ Amendment No. 1 to the R&B, Inc. 401(k) Retirement Plan and Trust.
10.5 (2)+ R&B, Inc. Employee Stock Purchase Plan.
21 Subsidiaries of the Company (previously filed)
23 Consent of Independent Registered Public Accounting Firm (filed
with this report)
Page 39 of 42
31.1 Certification of Chief Executive Officer as required by Section
302 of the Sarbanes-Oxley Act of 2002 (filed with this report).
31.2 Certification of Chief Financial Officer as required by Section
302 of the Sarbanes-Oxley Act of 2002 (filed with this report).
32 Certification of Chief Executive and Chief Financial Officer as
required by Section 906 of the Sarbanes-Oxley Act of 2002
(filed with this report).
------------------------
+ Management Contracts and Compensatory Plans, Contracts or Arrangements.
(1) Incorporated by reference to the Exhibits filed with the Company's
Registration Statement on Form S-1 and Amendments No. 1, No. 2, and No. 3
thereto (Registration No. 33-37264).
(2) Incorporated by reference to the Exhibits files with the Company's Annual
Report on Form 10-K for the fiscal year ended December 26, 1992.
(3) Incorporated by reference to the Exhibits filed with the Company's
Registration Statement on Form S-1 and Amendment No. 1 thereto (Registration No.
33-68740).
(4) Incorporated by reference to the Exhibits filed with the Company's Annual
Report on Form 10-K for the fiscal year ended December 25, 1993.
(5) Incorporated by reference to the Exhibits filed with the Company's Annual
Report on Form 10-K for the fiscal year ended December 28, 1996.
(6)Incorporated by reference to the Exhibits filed with the Company's Proxy
Statement for the fiscal year ended December 27, 1997.
(7) Incorporated by reference to the Exhibits filed with the Company's Quarterly
Report on Form 10-Q for the quarter ended June 25, 1994.
(8) Incorporate by reference to the Exhibits filed with the Company's Quarterly
Report on Form 10-Q for the quarter ended June 29, 2002.
Page 40 of 42
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
and Exchange Act of 1934, the registrant has duly caused this report to be
signed on its behalf by the undersigned thereunto duly authorized.
R&B, Inc.
Date: November 21, 2005 By: \s\ Richard N. Berman
----------------------------------
Richard N. Berman, Chairman, President
and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, this report has been signed below by the following persons on behalf of
the registrant and in the capacities and on the dates indicated.
Signature Capacity Date
---------- ------------------------- ----------
\s\ Richard N. Berman President, Chief Executive November 21, 2005
---------------------- Officer, and Chairman of the
Richard N. Berman Board of Directors
(principal executive officer)
\s\ Mathias J. Barton Chief Financial Officer November 21, 2005
----------------------
Mathias J. Barton (principal financial and
accounting officer)
\s\ Steven L. Berman Executive Vice President, November 21, 2005
-------------------- Secretary-Treasurer, and
Steven L. Berman Director
\s\ George L. Bernstein Director November 21, 2005
------------------------
George L. Bernstein
\s\ John F. Creamer, Jr. Director November 21, 2005
-------------------------
John F. Creamer, Jr.
\s\ Paul R. Lederer Director November 21, 2005
-------------------
Paul R. Lederer
\s\ Edgar W. Levin Director November 21, 2005
--------------------
Edgar W. Levin
Page 41 of 42
SCHEDULE II: Valuation and Qualifying Accounts
(in thousands) For the Year Ended
-------------------------------------- ----------------------------------------------------
December 25, December 27, December 28,
2004 2003 2002
----------------- ----------------- ----------------
Allowance for doubtful accounts:
Balance, beginning of period $ 1,191 $ 1,337 $ 901
Provision 110 504 737
Charge-offs (195) ( 650) (301)
-------------------------------------- ----------------- ----------------- ----------------
Balance, end of period $ 1,106 $ 1,191 $ 1,337
====================================== ================= ================= ================
Allowance for customer credits:
Balance, beginning of period $ 16,530 $ 16,517 $ 14,209
Provision 40,375 37,136 35,769
Charge-offs (37,436) (37,123) (33,461)
-------------------------------------- ----------------- ----------------- ----------------
Balance, end of period $ 19,469 $16,530 $ 16,517
====================================== ================= ================= ================
Page 42 of 42